VAT registration and small businesses

VAT registration is a problem for small businesses who sell to the general public. When your annual turnover exceeds £85,000, you must register for VAT and pay 1/6th of your gross sales to HMRC. However, there are some ways that you can avoid or delay veing VAT registered.

How to delay VAT registration

Restrict annual turnover to less than £85,000

Restrict your annual turnover to less than £85000 by doing things like limiting your customer numbers or closing up for holidays etc. However, this is a bit of a desperate measure and not a long-term viable option for many businesses.

Incorporate into a Limited Company 

If a sole trader becomes a limited company (or vice versa), this resets the turnover for VAT registration purposes to zero. This buys you time before having to register. However, if the threshold is exceeded in any 12 month period whilst operating as a sole trader and prior to becoming a company, you will be forced to register for VAT.

Split the business into two Limited Companies

It is a viable option to split your business into two limited companies where one or both parts of a business have income below the VAT threshold. This can save you a lot of VAT. It’s vital that each part of the business is autonomous, with separate costs, staff, premises, literature etc. There must also be very sound reasons for the split, like geographical reasons or a new and completely different market being operated in. If it is for a clearly artificial reason that the business has been split, HMRC will treat sales for both businesses as though there is only one. This means that both may need to VAT register.

VAT advice for small businesses and freelancers

If you are a small business in Wilstshire looking for advice on whether to delay being VAT registered, we’re the accountants for you. We’re not a national firm based halfway across the country. We have a special understanding of the pressures and opportunities for small businesses and freelancers in the Wiltshire area. And as local accountants, we’re invested in our community, engaged in regional networks and live and work right where all of our clients are. Get in touch today for a free consultation and let’s get the ball rolling.