Should I register for VAT voluntarily if I am below the GBP 90,000 threshold?

Full answer

You can register for VAT before reaching the GBP 90,000 turnover threshold. Whether it helps depends almost entirely on who your customers are and how much input VAT you incur. If you sell to other VAT-registered businesses, they reclaim the VAT you charge, so adding 20% does not really cost them. Meanwhile you start reclaiming input VAT on your own purchases, which is a genuine saving. If you sell to the public or to non-registered customers, charging 20% either raises your prices or squeezes your margin, because your customers cannot recover it. Worked example: a B2B designer with GBP 60,000 turnover registers voluntarily. He invoices a client GBP 1,000 net plus GBP 200 VAT; the client reclaims that GBP 200, so it is cost-neutral to them. He spends GBP 8,000 a year on standard-rated software and equipment, recovering GBP 8,000 / 6 = GBP 1,333 of input VAT he previously absorbed. By contrast, a hairdresser selling GBP 60,000 to the public would have to charge GBP 12,000 of VAT, money customers cannot reclaim, effectively cutting takings or raising prices by up to 20%. Other factors: registration adds Making Tax Digital filing obligations and record-keeping, but can make a small business look more established. You could also consider the flat-rate scheme to simplify compliance once registered. Use the VAT calculator to model the output VAT you would charge and the input VAT you could reclaim, then compare the net effect. For the current thresholds, MTD rules and how to register, check gov.uk.

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