£85 000 — that’s the value added tax (VAT) threshold.
Earn anything below that annually and you don’t have to register for the tax.
If you’re starting out, £85 000 might seem a long way away… unachievable, even.
Maybe you just don’t want to charge it.
Maybe you’re waiting to cross the VAT bridge when you come to it.
In all cases, it’s the wrong approach.
You should register your business for VAT from the get-go.
Why? This is business — the sky’s the limit.
It’s not just about having big dreams, though; registering for VAT carries several benefits.
You’ve got to get over any doubts and look past the fact you’re giving the taxman another slice of the pie.
Registering for VAT isn’t a barrier; it’s the first step on the road to success. Here’s why:
You’ll boost your business profile
It’s not always necessary to look bigger than you are as a business. In fact, projecting an image of yourself being larger than you are will damage your reputation if you bite off more than you can chew.
It’s true that charging VAT conveys the impression of greater success. By not charging VAT, you’re giving clues to your clients, potential and existing, about what your turnover may be, which may create doubts in their mind about your business and how well you can help them.
This is all about raising your standing amongst your competitors. Some companies and suppliers won’t work with businesses that aren’t VAT registered.
You can claim VAT on expenses
All business should log their expenses. That’s a no brainer.
When you pay for goods or services to help you run your business, the chances are you’ll pay VAT on them, too.
That VAT is money you could claim back. Plain and simple. Note that you must be paying out more in VAT for goods and services for your business than you’re charging. If you do, you can reclaim the difference.
There’s also the possibility that you’re selling one type of VAT-rated product or service, but paying for a good or service that is registered differently for VAT. You could get a refund.
Note that if you’re just starting out in your business and are non-VAT registered, you should hang on to expenses invoices. You can claim the VAT on these as far back as four years, as long as you can provide HMRC with enough evidence.
Such services might include your internet service, phone bills, office supplies and, if you live it in a private residence which you also use for business, your utility bills.
Avoid financial penalties
As you conduct business, you’ll have to track your turnover. Easier said than done when you’re in the thick of the action, generating as much income for yourself as you can.
Failure to fall in with the rules and track your turnover once it hits £85 000 could result in an unwelcome letter from the taxman will be dropping through your door — the kind that forces you to pay a fine. Not nice for your bottom line.
Register for VAT from the off and fines from HRMC for late VAT registration are one less worry.
Registering and pushing through that barrier
Set yourself up for success by registering for VAT as soon as you register your business.
From there, it’s relatively straightforward. Keep proper records and submit a VAT return each quarter.
Okay, so there’s a little bit of extra paperwork to do — a minor inconvenience and worth the hassle as you enjoy the benefits of being registered and start to see your business flourish.
What’s really stopping you?
You can play it safe and hover under the £85 000 threshold — or you can fight for your dreams and give your business a real opportunity to grow.
Not only that, as you build your business and your turnover rises, you can build the life that you want to lead.
A life where you don’t have to be in the office 12 hours a day, every day, to call yourself an entrepreneur. That’s not what this is about.
We have a barrier in our mind when it comes to VAT. I’ll be talking about that in more detail in a later post, but right now I want you to register for VAT and get yourself out of your comfort zone.
It’s time to take your business to the next level.