Freelancer’s Question: I recently established a creative, media and digital advisory consultancy, which is now doing well from fee and commission income. Overall though, turnover is slightly less than the VAT registration threshold, but might it still be beneficial to register the business for VAT anyway?
Expert’s Answer: You can voluntarily register for VAT at any time if your business makes, or intends to make, ‘VAT-able’ supplies, even if their value is below the VAT threshold - £79,000 a year at the time of writing. Once you exceed this VAT threshold, which seems likely if you expect your sales next year to grow, VAT registration is no longer voluntary but is required.
Registering for VAT will result in you having to inflate the sums you bill UK clients by 20%, costing them extra in the event that they cannot recover it. However as far as your business is concerned, a part of the VAT you incur will be reclaimable on expenses, including IT costs and professional fees.
Although some businesses regard registering for VAT as a burdensome process, doing so will normally save you money because of the portion of VAT you are permitted to recover. Before you register however, do consider the impact that charging 20% on top of your existing fees could have on your business. Lastly bear in mind, having overseas clients can complicate your VAT obligations, so consider these in the event your clientele does, or will, extend beyond the UK.
The expert was Tom Moore, a partner at Kingston Smith LLP.