You must register for VAT if your VAT taxable turnover for the last 12 months exceeded the VAT registration threshold of £85,000, or if you expect your turnover in the next 30 days to exceed this amount. However, while you are not obliged to register for VAT if your turnover is below this level, you can choose to do so voluntarily.
Is this beneficial?
If you are VAT registered, you will need to charge VAT on taxable supplies that you make. Unless you make zero-rated supplies (for example, zero-rated foods), this will make your products more expensive to the purchaser. If predominantly you supply to VAT-registered businesses, this may not be an issue as they will be able to recover the VAT charged. However, if you supply to individuals, charging VAT may make you less competitive against businesses that are not VAT-registered. If you supply standard-rated goods, you will need to add on 20%.
One of the main advantages of registering for VAT voluntarily is that you will be able to recover the VAT associated with making taxable supplies (including those that are zero-rated). However, if you make exempt supplies, you cannot recover the associated input tax.
Businesses that make zero-rated supplies only or mainly should consider registering for VAT voluntarily if their turnover is below the VAT registration threshold as they will be able to recover any associated input tax, but the imposition of VAT at the zero rate will not make their supplies more expensive.
Registering for VAT comes with an associated compliance burden. All VAT-registered traders are now within Making Tax Digital (MTD) for VAT. Consequently, they must maintain digital records and file VAT returns using software that is compatible with MTD for VAT. This will involve both time and costs, which may outweigh any VAT recovered.
To assess whether it is worthwhile registering for VAT voluntarily, there is no substitute for doing the sums to see whether what you could potentially recover is worthwhile.
Partner note: VATA 1994, Sch. 1, paras 9 and 10