Should You Register for VAT?

You have to register for Value Added Tax (VAT) with HMRC if you supply goods and/or services that are not exempt from VAT and your total sales exceed £60,000 (figures as of May 2005). You don't have to register if your total sales are less than this threshold, but you can choose to do so.

The advantage of being VAT registered is that you can claim back any VAT charged on things you buy for your business, which brings down your costs. This can seem quite attractive if you plan to buy a lot of expensive equipment.

For example, if you buy a computer costing £1,175 (including VAT at 17.5%), being registered for VAT means that you can claim back the £175 in tax, so the computer ends up costing you only £1,000. However, you have to balance this advantage against the fact that you will have to:

• Add VAT at 17.5% to all your invoices, which - unless your customers are VAT registered and so able to claim back the VAT they pay - pushes up the price of whatever you are selling.
• Keep accurate and detailed records and fill in a VAT return, which is usually every three months.
• Make sure that you have sufficient cash available to pay the VAT you have collected - less the VAT you can claim back - to HMRC.