Why it might be good to be VAT registered?
You’re probably thinking, what a load of hassle, why would anyone possibly choose to be VAT registered? But there can be advantages. It largely depends on who your customers are.
If your customers are mainly VAT registered businesses, then they may well expect you to be VAT registered even if you’re below the threshold. If you’re not VAT registered, they can’t claim back any VAT on your invoices which might be a disadvantage.
It can also help the company to look larger and more professional. Some larger companies will avoid dealing with non-VAT registered companies.
If you’re expecting the company to grow quite quickly over the threshold then it may well be better to register straightaway. That way you can avoid suddenly adding 20% to your prices and you don’t have the continual worry about whether you have crossed the threshold.
If you have a lot of purchases that include VAT, then it could be worth registering as you can offset this VAT against your sales VAT.
Why might it be bad to register for VAT?
If your customers are mainly consumers and other small non-VAT registered businesses, then being VAT registered can be a disadvantage. It means that your prices will be 20% more expensive than your non-VAT registered competitors. Or if you can’t change your prices then you will be losing a sixth of your sales income to VAT, so your profit will be lower.
For further information, see VAT Accountants.