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To register or not to register

5 April 2024

In the recent Spring Budget, the VAT registration threshold was raised to £90,000 (previously £85,000) which means that smaller businesses that did not want to register for VAT, now have an additional £5,000 of turnover.

VAT Registration Threshold Increase

The Spring Budget recently raised the VAT registration threshold to £90,000, up from £85,000. This allows smaller businesses an extra £5,000 of annual turnover without needing to register for VAT. Businesses selling to other VAT-registered businesses can register without changing their pricing; clients can reclaim the VAT added to their bills.

However, issues arise when selling to non-business customers who can’t reclaim VAT.

Two Choices for Businesses

Once a business exceeds the £90,000 turnover VAT registration threshold, it faces two options:

  1. Reduce prices so customers pay no more for services. For instance, if the pre-VAT price was £120, post-registration, you’d need to drop your price to £100. Adding 20% VAT brings it back to £120. Unless sales volume increases, this could impact profitability.
  2. Pass on the VAT to customers. In this case, the price remains at £120, but customers would be charged £144 (£120 plus 20% VAT). This could reduce sales and profitability unless there are limited alternative suppliers for your goods or services.

While the rise in the VAT registration threshold to £90,000 is welcome, it may not excite traders already dealing with price increases to counter inflation and rising costs.

Traders facing the “to register or not” dilemma have choices that require serious consideration. If you need help considering your options, please reach out.

Source: Other Fri, 05 Apr 2024 00:00:00 +0100

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