VAT registration: for many business owners it feels like a “someday” thing. It’s something you’ll take care of way down the line, when you’re closer to the threshold for registration, when you have more staff, when your business is bigger, when it feels like you’re ready for such a complex undertaking.
But here’s the surprising thing: There are actually numerous benefits to becoming VAT registered before you technically need to — and it’s far less complicated than you might imagine.
The benefits of VAT registration
Under current guidelines, UK businesses must register for VAT when their turnover exceeds £85,000. However, what many small business owners don’t know is that unless everything you sell is VAT exempt, it’s possible to register even before you reach that threshold.
And there are several compelling reasons for doing so.
You can add VAT to most of your products and services
Naturally, adding VAT to your products and services will increase your cash flow, which will be helpful if you’re trying to attract investors. And if you primarily deal with other VAT registered businesses, they won’t flinch at your price increases because they can reclaim the VAT.
You can reclaim VAT
As a VAT registered business you’ll be able to reclaim the VAT you pay on most of the products or services you purchase from other companies. Depending on your expenses, this could be a significant amount.
You can backdate your claims
Businesses that register on a voluntary basis can backdate certain VAT claims for up to four years. So you might be able to reclaim the VAT you paid on any recently-purchased equipment you’re still using.
Note: we always recommend you check in with your accountant before doing so, just to be sure you’re keeping yourself on the right side of the regulations.
You’ll be required to keep more accurate records
While this might initially sound more like a disadvantage, accurate record-keeping is invaluable for those who want to run their business in the most efficient way and keep abreast of their financial situation.
There’s a psychological element
Registering for VAT sends a message to both your potential customers and to yourself.
When you take that leap, you’re mentally setting yourself up for growth. Whether you’re skating close to the £85,000 or nowhere near it, you’re proving to yourself that you are more than ready to start swimming in a bigger pool.
Also, as unjustified as it may be, some organisations make assumptions on your business based on whether you’re VAT-registered and view registration as a sign that you’re the type of company they’re comfortable doing business with.
VAT made easy
While these benefits are certainly convincing, you may still have reservations. And it’s understandable; even before the advent of Making Tax Digital (MTD), which currently applies to VAT registered companies, VAT registration was widely viewed as an administrative headache.
However, while it’s true that you will need to increase the amount of documentation you keep — and be very strict about keeping it up-to-date — it doesn’t have to be the trauma you might imagine!
The right online accounting software can actually make the whole process feel effortless.
Clear Books is recognised by HMRC as Making Tax Digital compatible software. As such, you can create, review, and submit VAT returns in just 3 easy steps:
1. Track your sales and purchases.
2. Select your VAT return dates.
3. Review the 9 box return the software generates for you and submit it directly to HMRC.
You can also automatically apply fixed or variable VAT rates to your invoices so you know your calculations are correct and included in your monthly, quarterly, or annual VAT return.
VAT registration won’t be right for every business. However, if you’d like to take advantage of the benefits of VAT registration but are wary about having to deal with the extra admin that goes with it, please rest assured that it absolutely doesn’t have to be the headache you were expecting!
Clear Books Online Accounting Software
Clear Books is an award-winning online accounting software for small businesses. Thousands of business owners, contractors, freelancers and sole traders across the UK use our easy-to-use online accounting software to manage their business finances. All users benefit from the outstanding free telephone and email support. Clear Books was launched in London in 2008 and offers a free 30 day trial with free ongoing support and bank feeds. We’re rated as ‘Excellent’ on Trustpilot.