We're used to getting invoices and receipts with VAT on them … but do you know what being VAT registered actually means?
At the time of writing, if your business' VAT taxable turnover* is £85k or more then you HAVE to register for VAT.
You can still register for VAT if you earn less than this - you may want to do this because:
It makes the business look bigger than it actually is, and some people may then perceive it as a more credible business who will be able to look after them a bit better.
You can recover VAT on all your purchases - and this can include purchases you have made during the 3 years prior to registration if you are still using them and you still have the invoice.
You can also recover VAT on business services incurred in the 6 months prior to the VAT registration date if you still have the invoice.
However … voluntary registration does have its cons, mainly that VAT can become very complicated very quickly!
there are lots (and lots) of rules regarding VAT, and that goes into crazy amount of detail if you trade overseas.
You have to send in regular VAT returns
Your record keeping needs to be a lot more thorough than if you are not registered
You will be under more scrutiny from HMRC
VAT on fuel is waaay more complicated
you will most likely need extra assistance with your financial reporting and specialist advice on any VAT issues (meaning higher accountants bills)
If I'm being honest, for sole traders and other smaller businesses, voluntary registration is rarely worth the added hassle - but ultimately it's your decision as the business owner. Don't let me put you off.
If you want to talk about it more or have specific questions, please do email me at liz@money-bee.co.uk
*VAT taxable turnover is everything you sell that isn't VAT exempt … that's a whole other blog post waiting to be written though!