Forum - VAT registration
VAT registration
Sat, 30/01/2010 - 07:23 — 4little1s
Hi,
We are approaching VAT registration limit and just wondering what people views are of it in terms of does it provide any benefit to their business ? I can only see extra paperwork and more tax to pay from where I sit....or am I missing a trick ?
Appreicate any thoughts.
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The only BENEFIT I can think of is that in the first VAT return, you can include VAT suffered on expenses incurred in the 6 months prior to the date of registration, and VAT suffered on capital items purchased in the 3 years prior to the date of registration, as long as the capital item is still used in the business. This can add up. A one off gift from HMRC! As ever, terms and conditions will apply, so check on the detail with your accountant.
Tim
The answer to your question is: It depends. First you have to consider two points:
Who are your main clients? Business? Or Consumers?
If you work mostly for businesses being VAT registered is only a little more paperwork, and you collect the VAT from your clients, so it is probably a good thing.
On the other hand, if you work mostly for consumers you're going to have to pay the VAT out of your income. Whether you increase your prices depends on you. Remember that you'll be able to get the VAT back on many of the costs you incur in your business so the overall impact might not be as much as a 17.5% increase on your current prices.
When you are VAT registered you can take advantage of various schemes that can simplify dealing with your VAT return.
You can find all the information you need on HMRC's website if you have the time to trawl through it all. If you can find a local VAT adviser it'll probably save you a lot of time, and ultimately turn out to be a good investment as you'll also get the benefit of their years of experience.
As for splitting your business, it is not illegal to do it but there are a lot of things you need to consider to make it work successfully. HMRC do have the power to direct that where more than one business has been set up with a view to avoiding VAT registration they be treated as one for VAT registration. A VAT adviser will be able to help enormously in this area and make sure you avoid the pitfalls.
Robert
Hi
If you are nearing the limit, there may not be much you can do to avoid registration. We would need to know more about what you do to be able to give more details. For example, if you have 2 significantly different areas of activity within your business, you may want to consider separating them and running them as two separate businesses (we would also need to know if you oprerate as a sole trader or limited company to be able to assess this).
VAT registration can be beneficial in certain circumstances, for expamle if you have overseas or other 0 rated sales, and siginficant VATable costs, or if you are a start up with quite a lot of up-front VATable costs. If most of your sales are standard rated goods / services, and most of your cost is labour, then VAT registration will just mean paying more tax, but may not be something you have a choice about.
The other potential problem is your increased prices, depending on the status of your client base. Other VAT registered clients will not mind your gross prices increasing, as they can claim back the VAT element on their return, but if you mainly sell to the public, you will have to cope with becoming instantly more expensive.
The paperwork should not be a big deal if you have a computerised accounting system. Most of them are geared up to produce your return at a few clicks of a button, provided of course that all your paperwork (sales, purchases and bank) are processed up-to-date. You may want to consider the flat rate scheme as well.
VAT was meant to be the "simple tax" but it is not always as straightforward as it first looks. I hope the above helps, but always happy to have a chat if you would like to find out something more specific.
One word of caution – do not artificially separate your business to avoid vat registration. HMRC give guidance on this here:
http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm#7
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