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What is VAT and should I register?

When setting up a new business, you may want to consider whether you need to register for VAT.

By law, you must register for VAT once your turnover in a 12 monthly rolling period reaches £85,000 (2017-18). (£83,000 for 2016-17).

Once you have registered for VAT, generally, you will have to start charging VAT at 20% (the current VAT Rate) on top of your sales price. Of course this isn’t always the case. If the item you are selling is a fixed price, you may have to amend your price to become inclusive of VAT, leaving you with less profit.

The amount of VAT charged (output VAT) is payable to HMRC, usually on a quarterly basis, and is not included as part of your turnover figure.

However, once you have registered for VAT, you can usually reclaim VAT, on your purchases.

The amount paid on your purchases (input VAT) is offset against your output VAT, and the balance is either paid or reclaimed from HMRC.

Registering for VAT can be advantageous when your customer base is primarily VAT registered businesses. As these businesses will be able to reclaim the VAT you charge them, and you may therefore not need to alter your pricing to stay competitive, however, this can be a major disadvantage if your customer base is the general public, who will not be able to reclaim any VAT. In this case, you may have to think about your pricing structure to ensure that you can compete with other businesses!

There are different options when it comes to VAT registration, such as applying for the flat rate scheme, or for the cash accounting scheme, and if you would like to discuss this or if you have any further questions regarding VAT, please feel free to contact us at