First things first, what is VAT?
Value Added Tax – aka VAT – is the 20% tax that consumers pay to businesses when they purchase their products and services. While your business may collect VAT, it never belongs to you; it is paid to His Majesty’s Revenue and Customs (HMRC).

The legality of when – or if – to register for VAT is actually quite straightforward. Businesses are only required to charge VAT, register to pay VAT, and pay it usually quarterly to the HMRC when their gross annual revenue reaches a certain threshold. As of the 2023/2024 tax year, that VAT threshold stands at £85,000.

However, when it comes to VAT registration, there are other considerations, too. Some small business owners voluntarily register for VAT even before their annual revenue hits the compulsory £85,000 threshold.

Why might this strategy be worthy of consideration? Here are some of the potential benefits to consider:

A few benefits of being VAT registered:

  • Small businesses can give the perception that they are larger and hold a more formidable position in the market if they are VAT registered
  • If you sell a product or service to another business that is also VAT registered you can reclaim the VAT from HMRC. This:
  1. Helps to ensure that your selling price is still competitive, and 
  2. Enables you to recoup the VAT on your costs
  • You’re likely to receive repayments because your VATable sales are lower than your VATable costs. This may be because you’re accumulating stock or because your sales are below the standard rate of 20% at either the reduced rate of 5% or zero rate of 0%.

If considering the strategy of registering for VAT voluntarily you may want to weigh it up against the “cons” of VAT registration:

  • Increased admin and bookkeeping costs (but don’t forget, we can take care of this for you at some of the most cost-effective prices in the market!)
  • If your customers aren’t VAT registered (and are therefore unable to claim back the VAT they pay for goods and services), you will immediately be 20% more expensive than your non-VAT-registered competitors.

So, there you have it! Whether you’re deciding if to register for VAT, are looking to register, or are already registered and are looking to file your annual VAT return, 121 Company Formation can help!

Our expert, friendly customer service team can be reached at +44 (0)203 8932 121 or, alternatively you can whatsapp us on +44 (0)798 4046 470.

About 121 Company Formation121 Company Formation is one of the UK’s leading online company formation agents. We have helped over 50,000 entrepreneurs register a company in the UK. We offer the most comprehensive range of services including company formation packages that start at just £15.95, administrative, accounting, and bookkeeping services to support you and your business before, during, and after the incorporation process.

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