The Advantages Of Voluntary VAT Registration For Small Business

Voluntary-VAT-RegistrationValue Added Tax (VAT) is the sales tax levied against goods and services within the UK. Businesses with a turnover in excess of the VAT Registration Threshold (currently £70,000 P.A. 2010-2011) are required by law to complete a VAT Registration with HM Revenue & Customs. Businesses that fail to do so within 30 days of reaching this threshold are liable for a penalty for failure to notify.
Once a business is VAT registered it can charge VAT on goods and services sold to customers and also reclaim VAT charged on goods and services purchased for the business from other businesses, suppliers etc. VAT registration is therefore an important part of small business.

What Is Voluntary VAT Registration?

Although VAT registration is required by businesses with a taxable turnover above the threshold it is still possible to voluntarily register your business for VAT. And there are several business benefits to doing so.

What Are The Benefits of Voluntary VAT Registration?

There are a few benefits of voluntary VAT registration which make it quite appealing for small businesses.

  1. Avoiding Financial Penalties – No one likes to get an angry letter from the taxman. If you don’t keep a careful eye on your turnover then you might not notice when it creeps over the VAT registration threshold. You can be sure the taxman will though and failure to properly register could result in a nasty fine for your business. The obvious advantage of voluntary VAT registration is you won’t have to worry about passing the threshold or notifying HMRC in time. You can voluntarily register for VAT whenever you want to.
  2. Boosting Your Business Profile – starting out as a small business or new limited company it can be tough to compete against the big boys. Most people are aware of the VAT registration threshold, so voluntarily registering your business for VAT might give the impression that your business is bigger and more successful than it actually is.
  3. Easing Business Dealings – many suppliers and organisations are unwilling to do business with companies and SMEs that aren’t VAT registered. You might find that without the ability to produce a proper VAT invoice many of these people will be unwilling to deal with you. The advantage of voluntary VAT registration is you will be issued with a VAT registration number and can more easily deal with external businesses.
  4. VAT Refunds – another advantage of voluntary VAT registration is the ability to claim VAT on goods and services purchased for your business. If you are selling one sort of VAT Rated product (e.g. zero rated) while buying another (e.g. standard rated) you may actually receive money back from the HMRC in VAT refunds!
  5. Reclaiming The Past – voluntary VAT registration allows you to reclaim VAT from the last 4 years. So if you’ve been in business for a while, but not yet reached the threshold you can still reclaim VAT as long as you have kept the proper VAT records and invoices.
  6. VAT Registration Number – voluntary VAT registration means you’ll get a VAT registration number for your business. You can (and should) display it on your business website, stationery and correspondence. It will instil faith in your business and give your business a professional touch.

How To Register For VAT

You can directly register your business for VAT with HMRC. However because of the problems and issues associated with VAT registration the majority of people find it easier to use an agent. As a company formation agent we have plenty of experience helping people voluntarily register for VAT and getting the registration done correctly the first time. You can have peace of mind knowing that your business will be properly VAT registered and you can start taking advantage of the benefits.
Order VAT Registration online today or contact one of our business consultants on 0800 0828 727 for more support.

Beyond VAT Registration

Once voluntarily registered for VAT you need to abide by the same rules as another other VAT registered business. This means keeping proper records, invoices and submitting a VAT return every quarter. This might be seen as one of the disadvantages of voluntary VAT registration, but in truth it is one small hurdle.
The good news is, our start-up and fixed fee accountancy services include support with filing VAT returns and can be tailored to suit your business. So there is nothing to lose in voluntarily registering your business for VAT.

Related Reading:
VAT Rates
VAT Registration
• Online VAT Registration FAQ
• Late Filing Penalties

This entry was posted in Vat Registration on by Claudia Bamford-Niles.

21 thoughts on “The Advantages Of Voluntary VAT Registration For Small Business

  1. Austin

    Hi I would like to ask how to register VAT for a business we are about to start.

    one is a property agent and the other is a real estate investment fund based in Cayman

    Best regards,

  2. phil child

    Dear Sir,
    I’m starting a new business, i don’t think i will be exceeding the vat threshold, but I’m considering volunteering for vat. my question is
    if i charge vat, but i do not exceed the threshold amount, what happens to the vat charged ?


  3. Peter @ The Company Warehouse

    Hi Phil,
    Once you are registered for VAT you have to charge VAT on all relevant sales and give that money to HMRC. It makes no difference whether you registered voluntarily or reach the threshold. Once you are registered you have to charge VAT and regularly make VAT returns and payments.

    I hope that helps.

    If you have any questions please give us a call on 01245 492777


  4. Peter @ The Company Warehouse

    If you have made absolutely no sales then there would have been no VAT to collect and nothing to pay to the taxman. You will still need to complete a VAT return to show this and establish that you do not owe anything.

    If you need help with the VAT return please give us a call on 01245 492777.


  5. Georgie

    Hi Peter,

    I am starting an e-shop, where many of my items will be coming from China, and therefore will be liable to import tax, duty and (I think) automatically the corresponding VAT of China.
    I am not sure if I will exceed the 81,000 threshold, but I feel that I must register on a voluntary basis, because I can claim back the VAT of China. Can you advice me?

    Also, my sales (white paints) include other EU countries, mostly governmental bodies (like a supplies for a municipality etc), which are by definition no oblige to pay VAT. So in this case I’m in an advantageous position if I don’t register for VAT, right?


  6. Peter @ The Company Warehouse

    Hi Georgie,
    This is an area where you really need to speak to an accountant and check exactly what you will be able to claim back in terms of import duties etc as this is a fairly complex and specialist area.

    If you want to give us a call on 01245 492777 we can try and give you some more detailed information.



  7. Thi Nguyen

    Hi Peter,

    I’m Vietnamese but I set up to run online business in the UK. I registered VAT voluntarily as Non Established Taxable Person (NETP). Does it mean I still have to charge customer VAT standard rate (my product falls into standard rate product) and submit return for HMRC ? Because I just found out my big misunderstanding that voluntary registration also means charge no tax. Can you help me to solve following issues:
    1. I don’t have UK bank account. How can I submit return for HMRC?
    2. The amount I submit is difference between output tax and input tax or tax rate x revenue ?

    Thank you

  8. Ravi

    Hi Peter,

    I am an IT contractor but the turnover is well below the threshold. Can I voluntarily regester for VAT and get VAT paid for invvoices I have submitted for last four years?

    If I do, will I be penalised by HMRC for late registration? Please advise.


  9. Peter @ The Company Warehouse

    As long as you are under the threshold there should be no late registration penalty. You can voluntarily register at any point. The rules on claiming back VAT depend on what the VAT is on. The official government advice is:

    There’s a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is:

    4 years for goods you still have, or that were used to make other goods you still have
    6 months for services

    Hope that helps.



  10. Peter @ The Company Warehouse

    You are really going to need to speak with a qualified accountant about this. We can arrange this if you give us a call on 01245 492777.

    However the general principle is that once you are registered (whether voluntarily or not) for VAT you need to charge VAT on any sales you make. This may differ from the amount you can claim back depending on how much you buy and sell.



  11. Keith

    This is my first year of trading. I do not want to register for VAT unless my turnover exceeds the limit.
    If my turnover does exceed the limit, will I still be liable for VAT on sales made before I was forced to register?

  12. John

    Hi Keith,

    If your turnover exceeds the VAT threshold during your first year of trading, you will only be liable for VAT from the date of registration and not on sales made before it became compulsory for you to register.

    I hope that helps.

    Kind regards


  13. adam

    I sub contract to a window firm in the UK would I benefit from being voluntary vat registered ?

  14. Peter

    Hi Adam,
    That depends on a few things.

    If you are buying a lot of materials or services yourself and being charged VAT on them then you would be able to claim that VAT back if you did a voluntary registration. Of course you would also need to charge VAT to the company you sub contract for. They won’t mind this if they are VAT registered but probably won’t like it if they aren’t.

    If you want to discuss this in more depth please give us a call on 01245 492777.



  15. Andy


    Considering setting something up which requires a capital investment (Vat rated goods – materials, tools and services) but which will not generate sales for maybe a few years.
    i.e I would pay out a lot of VAT in years 1 and 2 but revenue would be trivial or zero in that time. If I’m paying 20% VAT – it would mean I effectively need 20% more capital to start with.

    Would being VAT registered at the start allow me to reclaim that initial VAT paid out (after each quarter) and so basically leverage my capital better? If things did not go well, would that VAT refunded ultimately be due if the business never really takes off.

  16. Peter

    Hi Andy,
    The basic principle is that if you are VAT registered you can claim back The VAT on any business costs. So yes you would be able to claim back the 20%. However, when you register for VAT with HMRC one of the questions they ask is whether you are likely to be claiming back more VAT than you pay. They are wary of businesses doing this so you may find that they ask a lot of questions about your business.

    If you are planning on investing a lot of money it will be worth sitting down with an accountant to go over what you are doing.



  17. Cynthia

    I’m currently working in a container and have saved money to build a store can I Claim back vat of the building material that they will use.

  18. Peter

    If you are VAT registered then you would be able to claim back the VAT on any materials your company purchases for a shop fit-out.

    If you want to discuss this in more detail please give us a call on 0800 0828 727 or 01245 492777.



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