Well, that depends on your particular circumstances. If your turnover in a 12-month period reaches the current £85,000 threshold, then registration is compulsory – and if you don’t do it, you’ll receive a fine as a penalty. If you don’t hit this figure, then registration isn’t obligatory, but you can still register voluntarily if you wish to do so. Let me remind you that with our VAT calculator you can calculate VAT in 1 click.
You must register for VAT when:
When we talk about 12-month period, we mean any rolling 12-month period – for example, from the start of July to the end of June. That’s different from the calendar year or your tax year, which represent fixed periods.
If your turnover is below £85,000, you can still opt for voluntary registration – which has certain benefits for some businesses.
The main advantages is that you can reclaim VAT on most goods or services you buy for your business. So, for example, you might collect £1,000 in VAT from your customers over a 3 month period. In the same period you also buy something from a supplier and you're charged £200 + VAT (Total: £240).
The amount you have to give to HMRC is the VAT you've collected (often called "Output VAT") minus the VAT you've paid out ("Input VAT"). So in this example you'll be handing over £960 (1000 minus 40). This means you're essentially £40 better off than you would have been if you weren't VAT registered.
There are other advantages too: