The current threshold for obligatory VAT registration is an annual turnover of £85,000. Voluntary registration is beneficial where:
- VAT on expenditure exceeds VAT on income and the trader could therefore claim a refund of VAT;
- customers are all or mainly VAT-registered and fully taxable and so do not mind being charged VAT, because they can recover it as their input tax;
- customers will only deal with a VAT-registered supplier; or
- having a VAT registration will enhance the image of the business.
The benefits should be weighed against the compliance burden of VAT registration, and whether charging VAT will reduce the competitiveness of the business.
A start-up can register for VAT voluntarily in advance making taxable supplies. This is known as an intending trader. The VAT Registration Manual VATREG21550 includes the following:
An intending trader is a person who, on the date of the registration request:
- is carrying on a business
- has not started making taxable supplies
- has an intention to make taxable supplies in the future.
Intending traders normally seek registration from a current date in order to reclaim input tax incurred in the setting up and development of their business. In some cases, the amounts involved may be substantial and cover a long period of time.
Actions to take
- Use a separate bank account for all your business-related expenditure
- Keep digital records of all pre-trading expenditure
- If you are investing in capital items (e.g. computer equipment) consider registering for VAT as an intending trader
- Remember to file your VAT returns. You are likely to have VAT refunds from recovery of input VAT on expenditure.
- From the date of VAT registration, the VAT registered entity must charge VAT on all supplies. If you have additional trades e.g. as a consultant you will need to change VAT on your consultancy fees.
How Alterledger can help
Alterledger can set up digital accounting systems, linked to your bank account. We use Xero and Dext to maintain digital records that comply with HMRC Making Tax Digital requirements.
Alterledger can register you for VAT as an intending trader, set up your VAT process and reclaim all the input VAT you incur in advance of trading. Setup costs can be significant; revering the VAT will have a positive impact on your cashflow, which is a boon to any start-up.
For more tips on maximising your claim for pre-trading expenses, see the blog post here.
Get in touch with Alterledger today using the contact form below to arrange an appointment and find out how we can help you to launch your business.