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Should I be VAT registered?

I am often asked what the advantages and disadvantages are of voluntarily registering for VAT.

Whether you are a sole trader, partnership or limited company, you can voluntarily register for VAT as long as you make relevant taxable sales and have an income which is less than the VAT threshold (currently £85,000).

The only exception is if your business makes exempt sales, for example providing insurance services, then you can’t register for VAT.

Advantages of voluntarily registering for VAT

There are a number of advantages of being VAT registered. These include:

  • You can claim back the VAT on your purchases. This can be backdated for up to 4 years from the date of registration, which can help with your current cash flow.
  • If you sell zero-rated items, such as books or food and buy standard-rated items you will receive a VAT refund from HMRC. There are 18 groups of zero-rated sales, so check to see if your business qualifies.
  • If you have a couple of months where you don’t sell anything but you are still buying goods and services for your business you will be able to claim a VAT refund from HMRC.

Disadvantages of voluntarily registering for VAT

If you don’t have to register for VAT, then it’s worth carefully thinking about the disadvantages, as sometimes they can outweigh the benefits:

  • As soon as you are registered for VAT you have to charge VAT on all of your relevant taxable sales regardless of whether your customer is VAT registered or not. This means your prices will immediately go up by 20% which could see you lose customers to non-VAT registered competitors.
  • You need to have the time and discipline to submit a quarterly VAT return to HMRC.
  • You need to keep good records. You may find it easier to use a bookkeeping package to ensure that all the transactions are accounted for correctly before submitting your VAT returns.
  • You have to ensure that you keep any VAT owed to HMRC available to meet the payment liabilities.
  • Claiming VAT on purchases is quite complicated and a fairly in depth knowledge of the VAT rules is required.

Running a business is already a full time job, so if you are thinking of voluntarily registering for VAT, and would like some further advice or help managing your bookkeeping and VAT returns, do get in touch.

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Breaking even – checking the numbers

In previous newsfeeds we have described how you can calculate the level of turnover you need to create in order to meet all your costs whether they be fixed costs (rent, rates etc.,) or variable costs (goods you need to buy to convert into goods you sell).

For example, if your fixed costs are £50,000 per annum and your variable costs are 25% of your turnover, the annual turnover you need to breakeven will be £200,000. The formula is:

Annual fixed costs divided by 25 (the gross profit)

Bereavement Support Payment

The amount of Bereavement Support Payment you can claim will depend on your relationship to the person who died and when you make your claim.

Your payments will be paid into your bank, building society or credit union account.

If you were married or in a registered civil partnership with the person who died

If you were receiving Child Benefit when your partner died (or did not get it but were entitled to it), you will get the higher rate.

This is made up of:

a first payment of £3,500;

Tax codes for employees

The P9X form is used to notify employers of the tax codes to use for employees. The latest version of the form has been published and shows the tax codes to use from 6 April 2023. The form states that the basic personal allowance for the tax year starting 6 April 2023 will, as expected, be £12,570 (£12,570 in 2022-23) and this means that the tax code for emergency use will remain at 1257L.

The basic rate limit will be £37,700 (£37,700 in 2022-23) except for those defined as Scottish taxpayers

Properties not let at commercial rates

There are special rules where a property is let at less than a commercial rate or isn’t let on commercial terms. These rules also apply if a property is occupied rent free or at less than a commercial rate, for example, a property is occupied by a family member at a reduced or nil rent.

In these circumstances, HMRC can take the view that unless the landlord charges a full market rent for a property and imposes normal market lease conditions, it is unlikely that the expenses of the property are

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