Register for VAT and save money

 In General

For the micro business or freelancer, every penny counts so anything that can be done to reduce tax or save money is welcome.

Who can register for VAT?

Any ‘taxable person’ can register for VAT, which includes:

  • An individual
  • A partnership
  • A company
  • A club
  • An association
  • A charity

If your business has an annual turnover of £81,000 or more, you are legally obliged to register for VAT, but you can opt to register even if your turnover is lower than this.

Note that certain types of businesses are exempt from VAT, such as insurance and education businesses. Talk to your tax accountant to establish whether your business is exempt or partly exempt from VAT.

Why register for VAT?

As a VAT registered business, you are expected to charge clients 20% on top of your invoice rates. On the flip side, your business is able to offset VAT paid on all business purchases, paying HMRC only the difference between the tax collected from clients and that your business spends. If you spend more than you collect, HMRC will send you a rebate after submission of your quarterly VAT return.

Alternatively many small businesses which have a turnover of less than £150,000 sign up for the flat-rate VAT scheme. VAT on purchases cannot be reclaimed, but you are allowed to keep a percentage of the VAT you charge your customers. As long as you are receiving more VAT than you pay out on your purchases, this effectively gives you ‘free’ money.

Both VAT schemes offer the potential for your business to save money. Talk to a VAT accountant to determine whether either of them is suitable for your business.

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