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Debunking common VAT myths.



There are so many misconceptions around the VAT system and how it works. VAT registration is a very exciting step but it is also not something to be taken lightly. In this article, we've rounded up the most common VAT myths that we have come across.


"I must register for VAT at the time of starting my business".


This is completely false - VAT registration has nothing to do with the start up process of a business. You can register for VAT voluntarily at any point, it only becomes compulsory once:


  1. Sales have reached £85K or more in any 12 month rolling period

  2. Sales are expected to reach £85K or more in the next 30 days

"I can reclaim VAT on every purchase I make".


Sorry to be the bearer of bad news, but this sadly isn't the case. There are some things where VAT simply just isn't charged, e.g. because it is outside of the scope for VAT, or because the supplier isn't VAT registered. In order to reclaim VAT, you must have paid it in the first place.


There are also quite particular rules around costs in which you can never reclaim VAT on, for example client entertaining.


"I should only charge VAT to clients who are also VAT registered".


This is false - if you register for VAT, you should be charging VAT to all your clients. There are certain exclusions around business customers who are based outside of the UK but generally, if you are a VAT registered business providing goods or services to customers in the UK, you must charge them VAT.


"Once you become VAT registered, you're registered for life".


This is also untrue. Whilst you are required to register for VAT once your sales reach (or are expected to reach) £85K, you are free to deregister from the scheme if your VAT taxable sales fall below £83K.


Final thoughts.


Registering for VAT can be an exciting next step in business. There is no law that says you must register for UK VAT if your total annual sales are below £85K, but for businesses that deal with a lot of VAT registered suppliers, we generally would recommend registering as this will mean the VAT portion of costs can be reclaimed, effectively reducing the overall cost of things.


Thinking of becoming VAT registered but you're not sure it's for you? Contact us today and we can help you decide.

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