VAT – Perhaps I should register for VAT from the start of my business?
Whilst you may not initially relish the thought of voluntarily registering for VAT, there are certainly some advantages to doing so, ahead of the time when you are required by law to do so, known as compulsory registration. Let me explain :
• Being registered for VAT can give your business a certain amount of “kudos” when it is being marketed to potential customers, they may see you as larger than you really are, or more financially viable and draw comfort from this.
• Being registered means that, yes, you do have to charge VAT to your customers, but, possibly of more importance, it also means that you can reclaim VAT on some or all of your purchases thus reducing their net cost to your business. This can provide a valuable financial boost to a new business where the start up costs for equipment etc can be quite high anyway, even before 17.5% (or 20% from next year) VAT is added on.
• If all or the majority of your customers are VAT registered businesses anyway, they should not be too concerned if you charge them VAT, as they will simply claim a credit on their VAT returns. So there is no customer downside in you registering, in these circumstances.
• With a compulsory VAT registration turnover limit of £70,000 (from 1 April 2010, on a rolling monthly basis), most successful businesses will have a need to register anyway, at an early stage, possibly within the first year or two of starting out. Doing so ahead of the compulsory registration point could simply mean you are able to get to grips with the VAT system as your business starts, whilst there are fewer “inputs” to deal with, and as issues arise you can perhaps learn as you go along, together with everything else of course!
• Yes, charging VAT to customers who are not VAT registered will increase your costs to them, but as you will obviously want your business to grow, why not get them used to it from the very out-set; there will be no shock at a later date as your business grows, to a point when you have to increase your prices to include VAT, as you hit the compulsory registration limit.
• Once registered you can still reclaim VAT on business related purchases made prior to registration, if they meet the VATman’s criteria and with set timeframes.
DISCLAIMER
The above information is provided purely for information purposes only and is intended to be general in nature. Always consult specific professional advice from a qualified tax adviser before you take any action. This information is, to the best of our knowledge, correct, complete and reliable, free from errors and up to date, we cannot guarantee that it is and will remain so. We and our Internet partners, disclaim all warranties and its provision is not intended to provide a client-tax adviser relationship in anyway whatsoever. This information only provides an overview of the position concerned at the date of publication. As such, we take and accept no responsibility whatsoever for any loss, be it financial or otherwise, incurred by any person or organisation, through either their positive acts, or acts where they have refrained from acting.
Graham Wilde is a Chartered Tax Advisor for www.taxnetuk.co.uk
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