Cultural Enterprise Office

Angela Bedi considers the advantages and disadvantages of voluntary VAT registration.

You can register for VAT voluntarily if you intend to make vatable supplies or if the value of your vatable activities is below the current VAT threshold.

There are all sorts of reasons for registering for VAT, e.g. to recover VAT on costs.

But there are downsides too, including:

• Having to charge VAT on relevant income
• The additional administration and associated costs
• The potential exposure to penalties.

These must be carefully weighed against any perceived advantage to conclude the best situation for you, and your business. Appropriately managing the downsides can minimise them.

Some businesses require significant investment upfront in vatable stock, premises or professional services. It may help your cash flow to register for VAT voluntarily and recover the VAT paid on these costs as soon as they are incurred. These costs are known as inputs.

Other businesses may have vatable inputs but little or no VAT to pay on outputs, e.g. if all stock is exported, or you supply zero rated goods such as books or children's clothing. Assuming you are properly entitled to recover the VAT incurred on costs, VAT registration would appear to have real financial advantages.

Some businesses may find registering for VAT has little or no financial downside for them or their customers, e.g. if the majority of your clients are VAT registered and able to recover the VAT, you can stay competitive. 

In the end, there will always be businesses for whom VAT registration is a very significant burden and therefore voluntary registration will not be appropriate. You must, however, regularly monitor your activities to ensure you are not required to register for VAT.

Registration for VAT is compulsory if the income from your vatable activities, in any twelve month period, exceeds the current VAT threshold. If this applies to you read our Am I required to register for VAT? FAQ.

What next?

• HMRC have a number of resources about VAT for those considering registration.
• If you have an accountant it may be time to speak to them about VAT registration.

Disclaimer: We want to keep you in the know, so we offer a wide selection of useful resources. But Cultural Enterprise Office isn’t responsible for the advice and information of external organisations in this document. So if you have any questions, please contact the specific organisation directly.