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Welcome to another edition of our Mythbusters blog series, where we uncover financial misconceptions that could be costing your business money. At Black & White Accounting, we believe that smart tax planning can be a game-changer—and today, we’re tackling a myth that many small businesses fall for: “I don’t need to register for VAT until I’m over the threshold.”
While it’s true that VAT registration only becomes mandatory once your taxable turnover exceeds £90,000 (from 1 April 2024), waiting until you hit the threshold could be a missed opportunity. Let’s uncover the voluntary VAT secret and why registering early could actually benefit your business!
The Myth: “I’ll Only Register for VAT When I Have To”
Many small businesses assume that avoiding VAT registration for as long as possible is the best strategy. After all, if you’re not VAT-registered, you don’t have to charge VAT on sales, making your prices seem lower and more attractive, right?
But here’s the catch: VAT isn’t just a burden—it can be a powerful tool that helps businesses reclaim VAT on expenses, improve credibility, and even boost cash flow.
The Reality: Voluntary VAT Registration Can Be a Smart Move
Even if your turnover is below the £90,000 threshold, registering for VAT voluntarily could give you a financial and competitive edge. Here’s why:
1. Claim Back VAT on Business Expenses
If your business incurs VAT on purchases, registering voluntarily means you can reclaim VAT on things like: ✅ Equipment & office supplies ✅ Professional services (accounting, marketing, legal advice) ✅ Business travel & fuel costs ✅ Software & subscriptions ✅ Stock & raw materials
For businesses with high start-up costs, registering for VAT could mean significant savings.
2. Boost Business Credibility
Being VAT-registered can make your business look more established and trustworthy, particularly if you deal with B2B clients. Larger businesses may prefer working with VAT-registered suppliers, assuming they are more professional and financially stable.
3. Avoid the VAT Threshold Trap
If your turnover is close to the £90,000 threshold, waiting until you are forced to register can cause cash flow problems. Suddenly having to add 20% VAT to your prices could lead to lost customers or reduced margins.
By registering early, you can gradually adjust your pricing strategy and avoid a sudden, disruptive change when VAT registration becomes mandatory.
4. Take Advantage of the Flat Rate Scheme
Smaller businesses with turnover under £150,000 can opt for the VAT Flat Rate Scheme, where you pay a fixed percentage of your turnover instead of reclaiming VAT on purchases.
For some businesses, this can simplify accounting and even lead to paying less VAT overall.
5. Work With More VAT-Registered Clients
If you mainly work with VAT-registered businesses, they can reclaim the VAT you charge, meaning your prices remain competitive. This removes the fear of “pricing yourself out” of the market due to VAT.
When Not to Register for VAT Early
While voluntary VAT registration has advantages, it’s not the right move for everyone. You may want to hold off if: ❌ Your clients are mostly individual consumers (who can’t reclaim VAT, making your prices appear higher) ❌ You have very few VATable expenses to reclaim ❌ You’re a brand-new business still testing your market viability
The Bottom Line: VAT Can Be an Asset, Not a Burden
If you’re hovering below the £90,000 threshold, don’t just assume that delaying VAT registration is the best choice. For many businesses, voluntary VAT registration can provide financial benefits, tax savings, and enhanced credibility.
Let’s Make VAT Work for You!
VAT doesn’t have to be a headache—it can be a powerful tool to boost your business’s bottom line. At Black & White Accounting, we help businesses like yours determine the best VAT strategy, whether it’s registering early, reclaiming expenses, or managing cash flow efficiently.
Not sure if voluntary VAT registration is right for you? Get in touch with our expert team today and let’s make VAT work for your business!
Stay tuned for more Mythbusters blogs, where we continue to break down financial myths and help businesses like yours grow with confidence.
