There are generally two reasons to register for VAT:

Compulsory: When your sales exceed £85,000 in a 12 month period.

Voluntary: If registering your business for VAT will be a benefit to you (the benefit is that you can reclaim VAT paid on supplies and expenses).

If you are VAT registered, you must also charge VAT to your customers.  This is not a problem when your customers are VAT registered – but causes problems if they aren’t.

Example: A builder replaces a roof on a privately owned house.

If he’s VAT registered, he can reclaim the VAT he’s paid on supplies for the job. When billing customers, he will have to charge them VAT which they cannot claim back because they are not registered.

If he’s not VAT registered, he cannot reclaim the VAT on his supplies. However, happily, his customers will also not be charged VAT – so less money to HMRC and more to the builder!