For many small business owners, VAT registration is seen as something to avoid until absolutely necessary. However, voluntarily registering for VAT before reaching the £90,000 threshold (from April 2024) can offer several benefits—depending on your business model. In this blog, we’ll explore when it might make sense to register early and when it’s best to wait.
What is Voluntary VAT Registration?
Businesses must register for VAT if their taxable turnover exceeds £90,000 in a 12-month period. However, if your turnover is below this threshold, you can choose to register voluntarily. Once registered, you must charge VAT on your sales, submit VAT returns to HMRC, and comply with VAT regulations.
3 Reasons to Register for VAT Voluntarily
1. Reclaim VAT on Business Expenses
If your business incurs significant VAT on costs—such as equipment, software, office rent, or professional services—voluntary registration allows you to claim back VAT on those expenses. This is particularly beneficial for businesses that:
- Have high startup costs (e.g., consultants, agencies, or e-commerce businesses investing in stock).
- Regularly purchase VAT-able goods or services.
- Lease office space with VAT on rent.
2. Credibility and Professionalism
Some businesses prefer working with VAT-registered suppliers, as it makes them appear more established. If you’re selling to other VAT-registered businesses (B2B), they can reclaim the VAT, so it doesn’t impact them financially. In contrast, if you work mainly with individual consumers (B2C), charging VAT makes your services 20% more expensive—so voluntary registration may not be ideal.
3. Future-Proofing Your Business
If you’re approaching the VAT threshold, registering early avoids the risk of accidentally exceeding £90,000 and facing penalties for late registration. Voluntary registration allows for smoother tax planning and compliance.
When Might It Be Better to Wait?
Voluntary registration isn’t always beneficial, especially if:
- Your customers are individuals (B2C). If most of your clients aren’t VAT-registered, adding 20% to your prices could make your services less competitive.
- Your business has low VAT-able expenses. If you don’t have many costs to reclaim VAT on, the benefits may not outweigh the admin burden.
- You want to keep admin simple. VAT registration means filing VAT returns (usually quarterly), managing VAT invoices, and following compliance rules.
Final Thoughts: Should You Register for VAT?
Voluntary VAT registration can be a strategic advantage, but it depends on your business model, customers, and financial situation. If you’re unsure, AJN Accountants can help assess whether it’s the right move for your business.
At AJN Accountants , we help individuals and business owners plan effectively for tax changes. Get in touch to discuss how these reforms could impact your estate and what steps you can take to mitigate potential tax liabilities
