VAT a to do?

To register or not to register that is the question.

No matter how you form your business (sole trader; limited company etc) you don't have to register for VAT until (at present) your turnover is at least £64,000 in any consecutive twelve month period. So why consider registering voluntarily before that?

Being VAT registered will allow you to claim back the VAT element on what you purchase. If your business requires you to make significant purchases from VAT registered vendors for resale by you, an unclaimable VAT element can have a significant impact on your selling prices. This factor alone may justify voluntary registration, particularly if you operate in a price sensitive competitive environment or have narrow profit margins.

Of course being VAT registered means you have to charge VAT too, which if, you are selling to the public or mainly non-VAT registered customers increases selling price to them in your role of unofficial (VAT) tax collector.

If, however, you sell business to business (B2B), considering voluntary registration can give you the real advantage of allowing your customers (if they are mainly VAT registered themselves) the opportunity to claim back the VAT element of your bill.

This, like many business decisions, should come down largely to the preferences and perceptions of your customers. In other words, whilst this is a financial issue it is equally an element of your marketing tactics. Quite simply this means that if your customer would prefer to deal with suppliers who are VAT registered then give them that opportunity. Business customers will have a perception of you as a (potential) supplier and your image and even perceived credibility can be enhanced by being VAT registered. It can give the impression of size and substance even though this is illogical, in the mind of your customer – it is real. They do say that “perception is everything” and this is because our reality is dictated by what we believe – even if it is illogical.