What are some valid reasons to register for VAT before reaching the required threshold?

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I know that the VAT registration threshold in the UK for 2019 / 2020 is £85000 and if the company turnover over the past 12 months exceeds this mandatory threshold at any point, the business must register for VAT.

But I also know that it is possible to register before that. When is it a good idea for a business to register for VAT before having reached the threshold? For what types of businesses does this make sense?

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Posted by al-fn (Questions: 36, Answers: 44)
Asked on 6 June 2020 11:52 am
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There are a number of reason why voluntary registration could be a good idea:

  • Reclaiming VAT – i.e. claiming back the input tax that the company paid, and receiving the refund;
  • Boosts up the image of your company and increases the confidence of your business – the company looks more professional and put-together;
  • Dealing easier with external business - some suppliers may be unwilling to do business with companies not registered to VAT as they cannot produce proper VAT invoices, so a voluntary registration will ease business dealings;
  • You will avoid accidentally exceeding the £85000 threshold and having to pay fines – HMRC expects companies to register anyway if the company’s turnover is approaching the threshold;
  • Reclaim VAT from past – you can reclaim VAT for goods from the last 4 years and VAT for services from the last 6 months. This is provided that the company kept adequate invoice records.

Typically voluntary registration makes sense when the businesses has high costs on which it can claim VAT.

Marked as spam
Posted by al-fn (Questions: 36, Answers: 44)
Answered on 6 June 2020 11:52 am