Over the next few weeks I will look at some of the most common issues business owners face. Having a good idea is only part of running a business; there are loads of other questions you need to ask yourself.
There are very many businesses which are either new, and below the VAT threshold but growing, or small enough to stay below the VAT threshold. The problem is when should you register for VAT? This question should always be considered carefully (and preferably with an Accountant) but below are some of the most common circumstances we see.
- The first question to ask yourself is “Who are my customers”? If you sell Business to Business, and they are VAT registered, then there is likely to be only one answer – YES, but be aware of extra HMRC requirements! No matter the age or size of your business the price will be exactly the same when your customer can claim the VAT back -whether you are registered or not. You will be able to claim back VAT on anything you purchase, which will increase your profitability on exactly the same sales. For some businesses this could be the difference between profitable and unprofitable sales. If your customers are domestic, or can’t claim the VAT back, then this is trickier. You will be 20% more expensive than your competitors who aren’t VAT registered. This is though offset by the VAT you can claim back on purchases. In most cases you would probably want to stay unregistered until you have to.
- The second question is “Am I likely to go over the VAT threshold soon”? The current VAT threshold is £79,000 per annum. This is calculated on a rolling basis, not a financial year, so some businesses can go over this without realising. If you are going to grow the business then it may be easier to pro-actively manage VAT registration, rather than just waiting for it to happen. If you have a quieter time, and are likely to have more time, then it may be preferable to register so all the invoicing, internal systems, pricing structures, can be revised in readiness. Also registration takes a few weeks to come through – so you can apply for a future date and be ready to go with minimal business disruption.
- The third question is “Would I be better off on the flat-rate scheme?” This is a whole different area – and will be the subject of our blog next week.
Have a fantastic weekend, hopefully the sun will shine wherever you are.