Should you register?
The advantage of registering is that a business can reclaim VAT paid on business purchases. But if a business mainly deals with members of the public and it begins adding 20% VAT to its prices, it may lose customers.
A business must register if VATable sales reach the registration threshold
- You must notify HMRC within 30 days of the end of the month in which VATable sales in the last 12 months exceeded £85,000.
- Exceptionally, if you expect sales to fall back below this level, you can ask HMRC to allow you to remain unregistered.
- You must also register if sales during the next 30 days alone are expected to exceed £85,000. For example, if a new company is set up with orders already in place totalling £85,000.
- Penalties for late notification can be as much as 15% of the VAT due in the first return, and you still have to pay HMRC the VAT you should have been charging customers.
You can opt to register for VAT even if sales are below the registration threshold
Doing this can allow you to reclaim the VAT paid on business purchases. It may be worth registering if:
- Your sales are zero-rated.
- Customers are themselves VAT-registered.
- You intend to set up a business making VATable supplies. Registering will allow you to reclaim VAT on your pre-trading expenses. You will need to provide evidence of an intention to make VATable supplies.
Registered businesses can deregister
- You should normally contact HMRC to deregister from VAT if you sell or liquidate your business.
- You can apply to deregister if VATable sales are expected to be less than £83,000 in the next 12 months.
- Deregistration involves completion of a final VAT return. Output VAT must be accounted for if the VAT due on assets and stock would be more than £1,000.