To register or not to register

In the recent Spring Budget, the VAT registration threshold was raised to £90,000 (previously £85,000) which means that smaller businesses that did not want to register for VAT, now have an additional £5,000 of turnover they can make each year without needing to register for VAT.

Obviously, if you sell goods or services to other businesses, and they are likely to be registered for VAT, if you are eventually required to register you can do so without changing your price structure; clients can simply claim back the VAT you have added to their bills.

But problems arise if you sell to non-business customers who cannot claim back VAT.

Once your business breaches the £90,000 turnover threshold you will be faced with two choices:

1. Reduce your prices so your customer pays no more for your services. For example, if the pre-VAT price was £120, following registration, you would need to reduce your price to £100, which plus VAT at 20% would equal £120. Unless you could increase your sales volume, this would have a serious impact on your profitability.
2. The second choice would be to pass on the VAT to customers. In this case your price would stay at £120, but you would need to charge customers £144 (£120 plus 20% VAT). Unless the goods or services you were selling had limited alternative suppliers, this price hike will likely reduce your sales and profitability.

So, although welcome, the rise in the VAT registration threshold to £90,000 will not overly excite traders who are grappling with the need to increase prices already, to counter inflation, and cope with rising costs.

Traders caught in this do I register or not conundrum do have choices, but they require serious consideration. If you need help to consider your options, please call.

The post To register or not to register appeared first on Feldon Accountancy.