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The pros and cons of VAT registration are a constant source of discussion among small business owners. Once turnover reaches £85,000 per annum you have a legal obligation to register your business, but some businesses decide to register prior to reaching that level, for reasons including credibility and cash flow planning opportunities.
It's a difficult balancing act when a small business is approaching the magic £85k figure. It's a sign of a flourishing enterprise, but regular customers may take their work elsewhere if they are suddenly charged 20% more. Also, the administration is considerable; VAT is one of the most complicated taxes a small business has to address and requires meticulous record-keeping.
What happens if you register, and turnover then falls the following year? If it falls below £83,000, which is the deregistration threshold, you may want to consider deregistering. If your VAT-registered company routinely buys goods or services from other VAT-registered companies, you are usually able to reclaim the VAT you have been charged, and this can be a considerable sum. If purchases are largely from non-registered businesses, however, then this could be an incentive to deregister.
You can do this online at the HMRC website, or fill in form VAT7 and send it by post. It can take up to three weeks for HMRC to confirm the deregistration, and you'll receive an official date from which you must stop charging VAT.
However, there are important points of which you need to be aware. You will need to submit a final VAT return for the period leading up to this date, and HMRC confirms that this must include stock and assets held if you could reclaim VAT when you bought them, and if the total VAT due on these assets is over £1000.
You will also need to keep your VAT records for the next six years, so it's important to hold on to the necessary paperwork.
Deregistration is compulsory if your business no longer meets the criteria for VAT registration, such as your business ceases to trade or you no longer make sales which are VAT taxable.
Here at AMR Bookkeeping Solutions we can advise on whether deregistering for VAT is a practical move for your company. Our friendly, expert team wants the best for your business, so get in touch.