Enterprise Nation

Our friendly in-house accountant, Alan Young, has lost track of the number of people he’s spoken with who think you register for VAT as soon as you set up a limited company. This isn’t quite the case. Alan puts us right.

A question of registration

There’s no legal requirement to register for VAT until the business turnover exceeds the registration threshold (currently £67,000) though this is applied on a pro rata basis.

In other words, if turnover in a three month period exceeds £17,000, and it is likely that it will continue to do so, then registration is required immediately.

It is possible to register for VAT voluntarily, even if you are below the registration threshold.

Why would you want to do this?
* To reclaim the VAT incurred on items you buy when starting up such as equipment
* To reclaim VAT on ongoing purchases and expenses - making them 17.5% cheaper.
* To improve company image. If a company is not registered for VAT, then potential large customers will realise that turnover is below £67,000, and may refuse to deal with a company of this size.

When considering voluntary registration, take into account who your customers are. If you’re dealing mainly with business customers, they’ll be able to reclaim any VAT that you charge. But members of the public won’t so your goods and services are 17.5% more expensive.

Weigh up your options and, if in doubt, post a question for me in the forum.

Alan Young, 1st Addition  

• An Introduction To VAT