Many experienced business owners advice that if you are building a business that you project will grow beyond the VAT turnover threshold, then you should do VAT registration from the very start. Generally, you can either register for VAT voluntarily, or be required to do so when the taxable turnover from your business exceeds £81,000. It is important to note that this amount refers to the overall income generated from all sales, and not just profit made. For this reason, most of small businesses and limited companies are required to pay VAT. Whether you decide to register voluntarily or wait till you are legally required to do so, it is essential to consciously plan for it in advance.

Planning for Vat Immediately You Start Your Business.

The hope of every entrepreneur is that his or her business will experience steady growth and increase in revenue. This makes sense considering most businesses are geared towards making profit.  As revenue rises, you have a greater chance of hitting or going beyond the turnover threshold of over £80,000 as stipulated in the UK and EU, at which point you are legally required to register for the payment of VAT.

Given that a business planning to grow rapidly and expand may not be able to avoid VAT for long, there are some things to consider. As a small business owner, you may consider the fact that voluntarily registration for VAT before your business reaches the taxable turnover mark may increase your cash flow, but it will raise your prices.  While this is true, what happens eventually when VAT charges are mandatory, especially when you have a set profit margin? Would you rather include the VAT into your profit margin, significantly reducing it for fear of customer reaction at increased prices, or do you alienate your customers by raising your prices? In order to avoid this type of dilemma in the future, it is important to plan for VAT immediately when you start your business.

Vat Represents an Integral Part of Your Business, Therefore, Preparation is Important

The implications of VAT on your business are more profound than you might imagine at first. If you have a growing business, the key is to factor in future registration for VAT that will affect your price, when you are setting your profit margin. For example, if VAT is pegged at 20 percent, a strategy in preparation for VAT registration will involve setting your profit margin at 30 percent from the onset. This way, when you pay for VAT, you still break even. In addition, when you decide to increase prices, the increment is marginal.

In addition, it is important to take book keeping seriously. You want to hire an accountant, or at least, book appointments from time to time, to know where you stand in relation to VAT requirements. In addition, the HMRC website provides you with all the information required regarding VAT. Another preparation strategy is getting accustomed with the requirements in advance so as to plan adequately and be prepared for VAT registration when the time comes.