When registering for VAT makes sense?
As a self-employed individual, you may think it is unnecessary to register for VAT because your turnover is low. However, there are instances when you can save money by registering for VAT. If you sell goods or services to clients or customers, who also are VAT registered, a business can save money. Adding VAT will not have a financial implication on your clients and it allows them to recover the VAT. You too can recover the VAT you pay for goods and services that your business uses. In fact, you can save money as a trader with VAT registration even if you have few expenses. You can do this by opting for VAT flat rate scheme.
Knowing when to register for VAT
If you are trader with relatively low turnover, there is no need to register for VAT. This also means you will not be able to reclaim the VAT you pay on services and purchases. As your business grows and the annual turnover reaches £82,000, you will have to register for VAT.
Once you register for VAT, you will have to add the VAT to the invoice amount that you charge customers. Once the registration is done, you can reclaim the VAT you pay on business-related expenses. And, your customers can also reclaim the VAT you charge if they are registered for it.
Remember, instead of paying the HMRC the VAT you have collected from your customer, you can first deduct the VAT you paid for office and business supplies and then pay the balance to HMRC.
Many financial experts advocate registering for VAT even if you are under the turnover threshold, as it helps to boost the image of a business, making it appear bigger and more established. Also, registering for VAT can help businesses increase their profits.
Keeping track of VAT
After registering for VAT, you need the keep records of it. This basically means making note of the VAT you charge your customers and the VAT your suppliers charge you.
VAT is added to invoice amounts for services and goods provided, and you can reclaim VAT for services and good your business receives.
Just make sure you know the rate of VAT that you have to charge for the goods or services you provide. You can get this information from HMRC or your accountant.
In case, as a sole trader, you have not registered for VAT, it is important to keep records of your taxable turnover to figure out when the time is right for registration.