Should I register for VAT?
What is VAT?
VAT is Value Added Tax. It is a sales tax charged by VAT registered traders on the value of the goods or services supplied to their customers. The amount charged varies. Some of the main categories are:
- “VAT exempt” where no VAT is charged e.g. postage stamps, insurance
- “Outside the Scope of VAT” where it does not fall into the UK VAT net e.g. statutory fees such as the Congestion Charge
- “Zero rated” It is chargeable but currently that rate is 0% e.g. books, leaflets
- “VAT Chargeable”. This means that VAT will be charged. The amount charged will vary depending on what is provided – between 5% and the (current) standard 20%
If you register for VAT you will have to charge it to your clients for Training but you can also claim back a lot (not all) of any VAT that you are charged by your suppliers. If you are not Registered you cannot claim it back.
Should I register?
I can’t answer that. If your turnover hits the threshold (currently about £85,000) in any rolling 12 month period you have to Register. If it doesn’t, you can choose whether or not to Register. If you make a lot of VAT chargeable purchases and your clients are mainly Corporates then it may make sense to. The Corporates won’t care as they can claim back what you charge, but you can claim back the VAT on any purchases you make.
If you are teaching mainly individuals, they almost certainly won’t be Registered for VAT themselves and so won’t be able to claim the VAT that you charge back. That will put you at a 20% price disadvantage to non-registered Training Companies.
If you are a Freelance Trainer and are earning less than the threshold you are probably better off not registering as a lot of Businesses that you Freelance for will probably not be Registered so, again, you will cost them 20% more compared to a non-registered Freelancer.
Find out more information on the Government website here:
Or speak to your Accountant (if you have one).
If you do Register you will have to submit Digital VAT Returns every quarter. You need special Software to do this so there may be a cost or your Accounts package may support it. Failing that if you use an Accountant they can do it for you (again, this may be at an additional cost or might be part of your package).
We use Quickfile which is a doddle to submit Returns once set up and the basic package is free.
I will say, from experience that once it is set up (and it is not that difficult), then as long as you use a reasonable Accounting package (rather than, say, Excel) managing VAT returns is very simple nowadays. I started in 1997 when it was all paper-based and much more of a faff. My first VAT Return took 2 weeks to reconcile (I was using a spreadsheet I created from scratch) before I could submit it! Now it takes about 10 minutes a Quarter to compile, check and file a return.
- Registering is optional – unless you hit the threshold
- If you are B2B, registration won’t make much difference to your Clients. If you are B2C then it will adversely affect your pricing by about 20% because you have to add 20% VAT to each invoice.
- You need to submit digitally and will need a compatible Software package to do this
- You will need a Government Gateway Account (AKA ‘VAT online’ Account). Not difficult to set up but does take a couple of weeks, so plan ahead.