VAT – Should We Or Shouldn’t We?
One of the most common questions I am asked by my clients and other SMEs I meet is: should I register for VAT and what’s the benefit? I can’t blame them. VAT is one of those taxes that can be as complex as a Gordian knot and the benefits are hard to see. Let’s see if I can unravel it for you.
Value Added Tax applies to goods and services on top of the costs of sale or delivery. The standard rate is 20% of the sale value.
It’s known as a consumption tax that we all pay regardless of our income. While there are some exemptions, VAT applies to the majority of products and services that registered EU businesses provide.
In the UK, VAT must be charged on eligible goods and services provided by every business whose turnover exceeds £85k. You need to apply for a VAT registration number and then make regular VAT payments to HMRC.
It’s interesting to note that VAT is not a tax a business pays directly. Instead, the businesses customers pay the tax, and the company makes the VAT return. This doesn’t make it any more pleasant though!
Push Me, Pull You
A complex element of VAT is that it is administered on an input/output basis. That is, a business can deduct the VAT they have paid in providing their services from the VAT they have been charged. This can result in an extra payment or a VAT credit depending on the difference.
I’m Not VAT Registered.
Now, this is where it gets interesting. If you’re not turning over £85k p.a., you don’t have to charge VAT. That means on average you can be 20% cheaper than your competitors. And, of course, you don’t have the hassle of VAT returns. Yay!
However, some SMEs worry that not being VAT registered flags them as being a low turnover enterprise and they won’t get business from the ‘big boys’. That’s an understandable dilemma. Let’s look at the issues in the round.
- If you’re a small creative business or freelancer, then it could be argued that no one would reasonably expect you to be VAT registered anyway.
- If you’re already paying a lot of VAT even below the £85k turnover threshold, then it may be in your interest to register and get a credit.
- If your business is growing rapidly, and you’ll hit the £85k threshold pretty soon, you may as well register. Rip the plaster off, as it were!
- Most large businesses don’t worry about VAT. It’s a bill they have to pay, and it shouldn’t affect their decision-making. You’re better off providing an excellent service rather than worrying that you are charging VAT.
This has been a brief overview of the UK VAT regime. Believe me; there are lots of other petit rules, dead ends and blind alleyways in the system. I wouldn’t blame you for being confused.
Happily, you can discuss your VAT concerns with the Team at Enso. We do know VAT and can help you understand where you are in the system and to make informed decisions that are right for your business.
Where required, we’ll help you get registered, and file your VAT returns on time, every time. Call me today on 07792686479 or email me at firstname.lastname@example.org let me unravel your VAT queries. I quite enjoy it, believe it or not!
You may not like paying your VAT bill, but at least with the help of the Enso team, we’ll make it as hassle-free as possible!