Register now for VAT or wait?

[Rashad Mahmood]

We are working towards a soft launch in September and would love to receive some good advice on whether we should VAT register now or wait until we hit the threshold. Allow me to provide further context.

We are in the process of building our website, through which we will sell our services to end consumers. We do not expect to hit the VAT threshold for at least two quarters (maybe less).

As we are also developing our invoicing system, we are contemplating whether to VAT register now to appear more credible and professional from the outset, or to wait until it becomes necessary.

Advantages of Registering for VAT Now:

VAT-inclusive Pricing: We can factor the 20% VAT into our costings from the beginning.
VAT Reclaims: We can claim VAT back from our suppliers.
Professional Appearance: Having a VAT number on our invoices may enhance our credibility with customers.

Disadvantages of Registering for VAT Now:

Administrative Burden: Handling VAT and making quarterly submissions increases paperwork.
Limited VAT Reclaims: As we are not yet focused on B2B, we may not be able to reclaim much VAT.
Pricing Adjustments: Once we do hit the threshold, it might skew our earnings. We will either have to absorb the higher costs or increase what we charge.

 

[Newchodge]

Disadvantages of Registering for VAT Now:

Administrative Burden: Handling VAT and making quarterly submissions increases paperwork.
Limited VAT Reclaims: As we are not yet focused on B2B, we may not be able to reclaim much VAT.
Pricing Adjustments: Once we do hit the threshold, it might skew our earnings. We will either have to absorb the higher costs or increase what we charge.

Admin burden generally consis of pressing a couple of buttons on the accounts software.

Limited VAT Reclaims. This makes absolutely no sense. If you are making a VATable supply you can claim the VAT on all your allowable expenses. It has nothing to do with B2B or B2C.

Pricing adjustments. What higher costs do you expect to have? Your expenses will all include VAt whether you are registered or not. If you mean you may not be able to add 20% to your proposed price, then consider whether you have the right price point in the first place. It would be better, if you don't want to register early, to price at your proposed proce plus 20% from the start, then the customers will not notice a price increase.

 

[Rashad Mahmood]

Admin burden generally consist of pressing a couple of buttons on the accounts software.

Limited VAT Reclaims. This makes absolutely no sense. If you are making a VATable supply you can claim the VAT on all your allowable expenses. It has nothing to do with B2B or B2C.

Pricing adjustments. What higher costs do you expect to have? Your expenses will all include VAT whether you are registered or not. If you mean you may not be able to add 20% to your proposed price, then consider whether you have the right price point in the first place. It would be better, if you don't want to register early, to price at your proposed price plus 20% from the start, then the customers will not notice a price increase.

Thanks for your response, and thanks for clarifying the vat reclaims and pricing adjustments.

 

[pentel]

to price at your proposed proce plus 20% from the start

and take advantage of the extra profit.

 

[Paul Kelly ICHYB]

We can factor the 20% VAT into our costings from the beginning.

You still can, just don't charge VAT!

Also, you will not have to simply add 20% to your prices, as the impact of VAT to you will not be 20%.

 

[Rashad Mahmood]

You still can, just don't charge VAT!

Also, you will not have to simply add 20% to your prices, as the impact of VAT to you will not be 20%.

Are you suggesting we make a smaller price increase and absorbing the rest?

 

[Newchodge]

Are you suggesting we make a smaller price increase and absorbing the rest?

You must add 20% to whatever you charge. However you will recover an amount of VAT on your expenses, so the cost to you is less than it was when you were not VAT registered. So you can reduce your charges to reflect your reduced costs.

 

[Rashad Mahmood]

You must add 20% to whatever you charge. However you will recover an amount of VAT on your expenses, so the cost to you is less than it was when you were not VAT registered. So you can reduce your charges to reflect your reduced costs.

thanks for the clarification

 

[HFE Signs]

If you're selling B2C then you'll most likely be better off waiting until you hit the threshold, however how will a 20% price increase impact on your sales when you reach the threshold? Or do you factor this in initially and enjoy higher margins in the short term.

Part of the decision will be down to what you have spent so far and how much vat are you able to reclaim, if this is a significant value, it might be better to register for vat now.

We can't give you the right answer here without seeing all the figures, I'd suggest running it past your accountant.

 

[DontAsk]

however how will a 20% price increase

Again, a 20% increase is NOT required.

 

[Daybooks]

The best advice in these situations is simply “crunch the numbers” and unsurprisingly always works.

Further context is irrelevant. If / when your turnover exceeds the threshold then there is no choice. Whilst you have a choice then examine your sales price sensitivity.

Choose which ever option returns the best profit. The other advantage of this approach is you will know why you are making this “informed” decision.

 

[HFE Signs]

Again, a 20% increase is NOT required.

Yes, we all appreciate there is a saving on reclaiming vat on costs so the direct impact to you isn't the full 20%, however from a buyers view there is a 20% cost difference between a buy who is vat registered opposed to a buyer who isn't

 

[DontAsk]

Yes, we all appreciate there is a saving on reclaiming vat on costs so the direct impact to you isn't the full 20%, however from a buyers view there is a 20% cost difference between a buy who is vat registered opposed to a buyer who isn't

Nice segue there, but you specifically stated "If you're selling B2C then you'll most likely be better off waiting until you hit the threshold, however how will a 20% price increase impact on your sales"

Consumers are unlikely to be VAT registered. If the non VAT price is lowered to offset the input tax then VAT registered price will not be 20% higher.

Again, there is no need for a 20% price increase.