You must register for VAT if you’re taxable turnover is over £81,000 in the past 12 months, but you can voluntarily register for VAT before then if it is beneficial to do so.
If your business offers goods or services to other businesses as a general rule of thumb these are more likely to register for VAT voluntarily and there are a number of reasons for doing so:
- As their clients are other businesses they are more likely to be VAT registered and therefore are able to reclaim any VAT charged.
- Being VAT registered can give the impression to potential clients that the business is larger or more well established than it is.
- If you are buying lots of goods and services that have VAT added you may wish to recover the VAT, (but also read about reclaiming pre-registration VAT)
If your business mainly offers goods or services to individuals adding VAT can make your costs more expensive than your competitors, so it may not be advantageous to do so.
Calculating your taxable turnover
Your VAT taxable turnover includes the value of any goods or services you supply within the UK, unless they are exempt from VAT. This means you must also include any supplies you make that would be zero-rated for VAT.
When calculating your VAT taxable turnover you will of course include your sales, but for VAT purposes, you should also include the value of certain other types of supply:
- goods or services that you exchange or barter – see the link below
- supplies of certain services that you receive from suppliers in other countries that you have to ‘reverse charge’
- where you use your own labour to construct certain building or civil engineering works for your own business use with an open market value of £100,000 or more
You must not attempt to avoid registration by artificially separating business activities to reduce your turnover.
Who can register for VAT
You can register for VAT if you’re in business and you are one of these:
- an individual (sole trader)
- a partnership
- a company
- a club
- an association
- a charity
- any other organisation or group of people acting together under a particular name, such as an educational or health institution, exhibition, conference, etc
- a trust
- a Local Authority
For VAT purposes, the individual or organisation that is in business is known as a ‘taxable person’.
Who can’t register for VAT
You can’t register for VAT if either of these is true:
- you sell only goods or services that are exempt from VAT
- you aren’t in business according to the definition that HM Revenue & Customs (HMRC) uses for VAT purposes
Once you’re made the decision to register for VAT you need to decide which VAT scheme to use.
- Cash accounting
- Annual accounting
- Flat rate scheme
- Or the normal accruals basis
For more information on the different VAT schemes available and how they work, read my “VAT – A Guide for Small Businesses” blog.