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This podcast selection is taken from a series of Business Hub radio shows broadcast on Star FM between February 2011 and October 2014 with advice from basic book-keeping through to crowd funding, directors loans, cashflow and a whole lot more!

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Business Trouble - your choices

Should I be VAT Registered?

The Business Hub Show - 28 August 2011

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This morning we are on the lovely subject of VAT. Introduced in 1973 as a simple tax …it is now a complete minefield with volumes upon volumes of rules and regulations!

However, the issue for today is, as a business, should you be registered for VAT.

Well, the answer is very simple if you have a turnover of £73,000 or more within the UK – it is very likely to be yes! That is assuming what you are selling are taxable goods or services for the purposes of VAT. There are some exempt areas, but it is pretty safe to assume that the vast majority of businesses must register. So at £73,000 or more you must be VAT registered – and this threshold tends to be revised upwards slightly each year.

However, what you must be careful of is if you are currently below this limit, but your business is growing, is understanding how the rules work for when you must register? Getting this right is critical.

If your turnover within the UK for the previous 12 months is more than £73,000, or you expect it to go over that figure in the next 30 days alone, you must register for VAT. However, if your turnover has gone over the registration threshold temporarily then you may be able to apply for exception from registration, and there is a process for doing this. So, if you are likely to be close to the limit then you need to keep a careful eye on your rolling last 12 months turnover and what you expect to happen in the next month!

HMRC take a very dim view on those that fail to register, with high penalties and charges, however there is presently an amnesty in place which means they will look much more favourably on voluntary disclosure if you have gone over the registration limit without registering.

The other aspect is that if you are below the threshold, you are still able to voluntarily register should you wish to. The question is, is this the right thing for you and your business?  To my mind there are two key issues to consider here.

The first is that if your sales are mainly or exclusively to other VAT registered businesses then I would suggest it is seriously worth considering. As your customers will be able to reclaim the VAT you charge them there is no extra cost to them of you charging them VAT in addition to your normal price, however you will be able to reclaim the VAT you incur on your costs and expenses. This is quite likely to be worthwhile and will offset the additional administration involved in being VAT registered. There are also schemes available for small traders like the Annual Accounting Scheme which can reduce this burden.

Clearly, if you are selling mainly to private individuals and consumers then becoming VAT registered might very much work against you as it will in effect mean a 20% price rise for your customers!

The other issue that I think is worth considering is perception. If you are building a business selling to other businesses what messages do you send to your customers if you do not charge them VAT?  For starters that you are small and perhaps not a serious player?  So potentially your invoices may counter all that marketing you are putting out there suggesting that you are a credible and strong and maybe even a more substantial business than you are?  I think it is worth some serious thought.

Finally, as VAT is perhaps an inevitability for any business that is looking to grow and build, look on it as an opportunity. An opportunity to build a serious business. If you are VAT registered you have no option but to maintain proper and accurate accounting records, a good and firm foundation for any business. So, why not start as you mean to go on and build firm foundations and do it properly!!

Like I said at the beginning, this is a complex area, so check the facts as they apply to your business, and seek advice. The HMRC website is a very good starting place!

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