VAT registration is a problem for small businesses who sell to the general public.  When annual turnover exceeds £85,000, they must register for VAT and pay 1/6th of gross sales to HMRC.  However, you can avoid/delay registration:

  • Restrict annual turnover to less than £85,000 – by limiting customers, closing up for holidays etc.
  • Incorporate into a Limited Company – this resets the turnover for VAT registration purposes to zero – buying time before having to register – but if the threshold is exceeded in any 12 month period, you will be forced to register for VAT.
  • Split the business into two Limited Companies – where one or both are below the VAT threshold, saving a lot of VAT. It’s vital that each is autonomous, with separate costs, staff, premises, literature etc. and that there are sound reasons for the split (say geographical or a new market). If it is artificial HMRC will treat sales for both businesses as though it is one.