The Benefits Of Voluntary VAT Registration

The turnover requirements for compulsory VAT registration and why lower-earning businesses may choose to sign up.

As a small business owner, you may be confused about the regulations surrounding VAT registration. In 2019/20, the VAT registration threshold is £85,000, meaning that if your annual turnover meets or exceeds this figure, you must immediately register to pay VAT. That may sound simple enough, but what may seem puzzling is that some businesses who fall way beneath this figure voluntarily become VAT registered. This guide will help you understand the benefits and legalities of VAT.

Staying On Top Of Your Figures

It is your responsibility to have a thorough understanding of how well your business is performing. You’ll need to register for VAT within a strict 30-day limit of meeting the threshold, regardless of when this falls in the financial year. For example, if your financial year is April 2019 to April 2020, but you’ve made £86,000 from February 2019 to February 2020, then you shouldn’t wait until the end of the financial year to register. Failure to do so will cost you a fine.

It may sound challenging to keep on top of your figures, but an accountancy services Peterborough team explain that it’s straightforward when you use specialist bookkeeping software with an inbuilt threshold tracker. You can set up a simple alert so that you’re able to stay on top of your figures. Many small businesses also benefit from outsourcing their accountancy tasks to free up time and resources to spend on the running of their business.

Benefits Of VAT Registration

Compulsory VAT registration is one thing, but there are multiple benefits for businesses with a lower turnover. By becoming a VAT registered business, you’ll be setting the intention and tone that your business is expected to expand in the near future. Customers and B2B contacts will take you seriously when you’re VAT registered, and you’ll also have the systems in place to be immediately ready for that growth when it does occur.

Reclaiming VAT is another benefit of voluntary registration. When you are charged VAT for goods or services from another source, this is known as your input tax and will be measured against the VAT you collect from your own customers, which is known as your output tax. When input tax is greater than output tax, you can claim back the difference from HMRC. Conversely though, the opposite can come into play if you have collected more VAT than you’ve paid, and you’ll need to reimburse HMRC with the difference.

Making Tax Digital

HMRC has introduced the Making Tax Digital (MTD) software which is compulsory for all VAT registered businesses with a taxable turnover of at least £85,000. This is currently voluntary for those with a lower turnover, but is expected to roll out further in the coming years. The MTD software makes it easy for you to keep abreast of your tax requirements and simplifies that end of year tax return process.

VAT registration can be daunting to small business owners, so you may wish to seek guidance from an accounting professional to give you peace of mind that you’ve met the necessary requirements in full.