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Businesses selling taxable goods and services must register for VAT when their turnover reaches the VAT threshold, but registering voluntarily before reaching the threshold can have benefits for some businesses. In this article we’ll look at compulsory VAT registration versus voluntary registration, and what the rules and requirements are.
 

When is VAT registration compulsory?

Who can register for VAT?

Will my business benefit from voluntary VAT registration?

What are the disadvantages of voluntary VAT registration?

Putting aside voluntary registration for now, it’s essential that you register for VAT if your total VAT taxable turnover:

How do I check my VAT taxable turnover?

Your VAT taxable turnover is the total amount of sales made in the last 12 months which would have been subject to VAT. This is where good bookkeeping steps in to save the day, so you know where you’re up to! A few important points to remember:

 

You can register for VAT if you are in business as a:

One of the (false!) myths of VAT is that only limited companies can register. This isn’t true, and the basis for VAT registration is actually the turnover of a business (the amount it makes from sales) rather than its legal structure. So, whatever type of business you run, you can register for VAT if you want or need to.

Like any business decision, this depends on your own unique circumstances. Some businesses find that making a voluntary registration is worthwhile because it helps them to be more tax efficient.

This is because VAT is charged by the seller, so you’ll pay VAT even if you’re not registered for it yourself. If you buy something taxable from a VAT-registered seller, then they’re going to charge you VAT on the purchase.

If a business is VAT registered it can also claim back the VAT it pays on purchases – as long as the amount it pays out is higher than the amount it collects on sales in the same period of time.

Very broadly speaking, a business which regularly pays more VAT to suppliers than it would charge to customers if it registered, could benefit from voluntary VAT registration.

Will registering for VAT be tax efficient?

The question of voluntary VAT registration being tax efficient depends on the things that your business buys and sells. Not everything is subject to VAT, and some items are charged at different rates. For instance, children’s shoes are subject to VAT but at a rate of 0%, whereas parking is exempt.

So, if your business buys lots of things that are subject to VAT, but the things it supplies are not, you’ll regularly pay more VAT on purchases than you charge on sales. This means that making a voluntary registration for VAT would allow you to claim back the difference between the two on a regular basis, which will help you be more tax efficient!
 

Your business pays more VAT on purchases than it collects from sales Your business collects more VAT from sales than it pays on purchases
The business has paid more VAT than it collected The business collected more VAT than it paid out
It can reclaim the difference between the two It must pay the difference between the two

 
Think about it from the other side though. If the nature of your sales changes so you end up charging VAT more regularly, making a voluntary registration for VAT might not be so useful. In that situation, it would likely be better for you to wait until you have to register.

Making sure you register in plenty of time

There’s a lot to remember when you run a business, and it can be difficult to keep track of everything, especially when you’re busy. If you realistically expect to reach the compulsory threshold, registering for VAT voluntarily ensures you don’t miss your deadline. Nobody wants to receive penalties!

Attracting customers

Not being VAT registered does make it obvious that turnover is below the registration threshold. For some customers VAT registration is a sign of prosperity, and therefore stability. As a smaller business, voluntary VAT registration can boost your profile when competing against larger contenders.

You might also find that some VAT-registered customers prefer to shop with other VAT registered businesses, so think about who your customers are, and what your registration might mean to them.

Reclaiming VAT on purchases before registration

Once you register for VAT, you may be able to reclaim the VAT on purchases you made before registering.

If you know you need to register for VAT in the near future, but don’t want the window of opportunity to close on reclaiming VAT for older purchases, you might feel that making a voluntary registration is useful.

Voluntary registration for VAT may be a good idea, but it can also have disadvantages.

To talk to one of the team about our online accounting services (including VAT), call us on 020 3355 4047, and get an instant online quote.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

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Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

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Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.

Bookkeeping

You will receive our bookkeeping software Pandle for free, as part of your package.

You can use this to complete your own bookkeeping, or we can provide a quote to complete your bookkeeping for you.

Please select and option below:

I will do my own bookkeeping
I want you to do my bookkeeping

Call us on 020 3355 4047 if you’re not sure.