Voluntary VAT registration often gets overlooked. Many small businesses aim to stay under the £90,000 threshold to avoid VAT. They fear more admin and think VAT will scare customers away. But going VAT registered before you must can offer big rewards.
This blog explores the pros and cons. We’ll cover cash flow, tax reclaim, customer perception, and the admin involved.
What Is Voluntary VAT Registration?
You must register for VAT if your turnover exceeds £90,000 in a 12-month period. But you can register earlier.
Voluntary VAT registration means you sign up before hitting the threshold. It’s a proactive move, not a legal requirement.
Why Some Avoid VAT Registration
Many fear VAT adds costs and hassle. They worry customers won’t like seeing VAT on invoices.
Others want to avoid Making Tax Digital (MTD) for VAT obligations. Admin takes time, and people don’t want that extra burden.
But let’s explore the other side. You might gain more than you lose.
Key Benefits of Voluntary VAT Registration
You Can Reclaim Pre-Registration VAT
HMRC allow you to claim back VAT on goods bought in the last four years. But there are conditions.
You must still hold the goods on the registration date. Or they must help make future taxable sales.
They must not be fully used or sold. And your business must have operated for those four years.
You also need valid VAT invoices and records from that time.
You Can Claim VAT on Services Too
Services bought up to six months before registration may qualify.
They must support the business setup. You can’t have passed that VAT on to your own customers.
You need valid VAT invoices to support your claim.
Website design is a common example of reclaimable pre-registration services.
Improved Cash Flow
VAT reclaim boosts your cash flow. Especially helpful in early stages when costs run high.
Stock, tools, and equipment costs stack up. If suppliers charge VAT, you’ll get some of that back.
You can then reinvest that money elsewhere in your business.
A More Professional Image
VAT registration can build trust. It suggests you’ve grown to a certain level.
It may even open doors with clients or partners who prefer dealing with VAT-registered suppliers.
It adds credibility and signals ambition.
Better Business Opportunities
Some VAT-registered firms only work with other VAT-registered suppliers.
That’s because they can reclaim the VAT. Non-registered suppliers are often less attractive.
You may miss out on work if you’re not VAT registered.
Avoid Penalties for Late Registration
Going voluntary removes the risk of forgetting to register.
If your sales creep past £90,000 and you miss it, you could face penalties.
Register early and stay ahead of the game.
The Downsides of VAT Registration
You’ll Likely Charge More
If you sell to the general public, they can’t reclaim VAT.
They may not accept a price increase. Especially in competitive markets.
However, you don’t have to pass on the full 20%. You could absorb some or all of it.
Selling zero-rated goods (like some food or books) means you won’t charge VAT anyway.
More Admin and MTD Compliance
VAT registration means more record-keeping and digital filing.
Making Tax Digital (MTD) applies to VAT returns. You must keep digital records and file using approved software.
If that sounds daunting, speak to your accountant. Or contact us at I Hate Numbers.
Planning Ahead with ‘Intending Trader’ Status
You can register even before trading begins.
HMRC allows ‘intending traders’ to register for VAT. You must plan to make taxable supplies soon.
This lets you reclaim VAT on setup costs. You won’t lose out because of tight time limits.
That includes services like accountancy, legal advice, or IT support.
Is Voluntary VAT Registration Right for You?
There’s no one-size-fits-all answer. But consider these questions:
Do you plan to grow soon?
Do you buy from VAT-registered suppliers?
Do your customers care about reclaiming VAT?
Can your pricing handle VAT without scaring off buyers?
Answering ‘yes’ to some of those makes VAT registration worth exploring.
Talk to Us Before You Decide
VAT is complex. Timing matters. So do the rules.
At I Hate Numbers, we help you understand your tax and business choices.
We offer jargon-free advice, tailored to your business.
Don’t guess. Don’t delay. Book a call with us today.
Final Thoughts
Voluntary VAT registration isn’t for everyone. But done right, it can strengthen your finances and your reputation.
Reclaim tax, attract bigger clients, and stay ahead of penalties.
Avoiding VAT forever may limit growth. Thinking long-term is good business sense.
Book a Free Call Today
Ready to explore whether VAT registration makes sense for your business?
Let’s have a chat. No pressure. Just practical advice to help you decide.
Book your free call here
If you need help with VAT, MTD, or other tax decisions, browse our blog for more business tax tips.
Plan It, Do It & PROFIT!