Contractors and small businesses often ask the question should they register for VAT.
VAT can be one of the trickier areas of business to get your head around but with some clear guidance on the options, you will find that VAT registration can be really quite straightforward and may help your cash flow and bottom line.
VAT Registration
Compulsory: If your business’ turnover is over £90,000 in a 12 month rolling period then you must register.
Voluntary: Some businesses choose to register voluntarily if their turnover is less than £90,000. It can make you look more established to potential customers and you will be able to reclaim VAT on business expenses.
VAT Schemes – What’s on offer
Flat Rate Scheme – Businesses pay a fixed percentage of turnover (depending on the industry), you keep the difference between the VAT charged to customers and the VAT paid to HMRC. It’s a good option for businesses with few allowable expenses. You can claim for capital purchases over £2,000, and in your first year you get a 1% discount. You can’t reclaim VAT.
Standard Scheme – The standard scheme is the ‘default’ scheme. You charge 20% VAT on most sales, and can reclaim VAT on most expenses. It can be a lot of admin though.
Cash Accounting Scheme – You only pay VAT to HMRC when you get paid by your customers. It can have a big positive impact on your cash flow.
Pre-registration VAT
VAT you’ve paid on goods purchased up to 4 years before registering for VAT, and for services incurred within 6 months of registering VAT may be reclaimable which can be a nice chunk of cash to get you started.
Our view
The right VAT decision for you can help with your cash flow and reduce your costs. The wrong one could lead to more admin than you’d like or may miss out on reclaiming. As with most decisions in business, it pays to do your research.
Need help with VAT? Bright Ideas Accountancy specialises in dealing with contractors, freelancers and small businesses, as well as VAT registration. Get in touch with us today.
