Is it worth registering for VAT voluntarily?

< Insights

12 October 2022

The main advantage is to be able to recover the VAT associated with making taxable supplies.

advice : Tax
vat

You must register for VAT if your VAT-taxable turnover for the last 12 months exceeded the VAT registration threshold of £85,000, or if you expect your turnover in the next 30 days to exceed this amount. 

However, while you are not obliged to register for VAT if your turnover is below this level, you can choose to do so voluntarily. Is this beneficial?

Need to charge VAT

If you are VAT registered, you will need to charge VAT on your taxable supplies. Unless you make zero-rated supplies, this will make your products more expensive to the purchaser. If predominantly you supply to VAT-registered businesses, this may not be an issue as they will be able to recover the VAT charged. However, if you supply to individuals, charging VAT may make you less competitive against businesses that are not VAT-registered. If you supply standard-rated goods, you will need to add on 20%.

Advantage of registering for VAT voluntarily 

One of the main advantages of registering for VAT voluntarily is that you will be able to recover the VAT associated with making taxable supplies. However, if you make exempt supplies, you cannot recover the associated input tax.

Businesses that mostly make zero-rated supplies and their turnover is below the VAT registration threshold, should consider registering for VAT voluntarily as they will be able to recover any associated input tax, but the imposition of VAT at the zero-rate will not make their supplies more expensive.

Compliance obligations

Registering for VAT will bring an associated compliance burden. All VAT-registered traders are now within Making Tax Digital (MTD) for VAT. Therefore, they must maintain digital records and file VAT returns using software that is compatible with MTD for VAT. This will involve time and costs, which may outweigh any VAT recovered.

Is it worth it?

To assess whether it is worthwhile registering for VAT voluntarily, there is no substitute for doing the sums to see whether what you could potentially recover is worthwhile.

The information available on this page is of a general nature and is not intended to provide specific advice to any individuals or entities. We work hard to ensure this information is accurate at the time of publishing, although there is no guarantee that such information is accurate at the time you read this. We recommend individuals and companies seek professional advice on their circumstances and matters.