Effects of VAT Registration on Small Businesses

If you have turnover over £90k in the last rolling 12 months you should be registering now, or if you breached this in a previous month you could be late registering at this point.

Look at the flat rate scheme, could be beneficial for you until your turnover grows more

If you mainly buy from private individuals, look into the VAT margin scheme:

CeX for example use it as they buy their stock from members of the public.

You should consider this the price of success....

How this affects your bottom line will be determined by the type of customers you have (which you didn't mention). If your customers are VAT registered then there is no impact. But if they are individuals well yes your cost to them will increase.

Either you accept this or else throttle your business to keep under the VAT thresholds.

We’ve been speaking to an accountant and according to our books, in the last 12 months, we’ve hit revenue of around £100,000. We expect this to grow over the next couple of years. This would lead to us having to register for VAT. Normally VAT would predominantly affect the customer rather than the business but I believe it would affect our business massively due to how we operate.

Long story short, we buy our products from private sellers who are not VAT registered & if we decided to increase our sale price by 20% it’ll mean we won’t be competitive thus less sales.

What would you recommend us doing going forwards.

Any help/advice would be appreciated

Taking into account inflation and poor economic activity do you think the current VAT threshold is too low and anti growth?

UNPOPULAR TAKE: you really should take into account future VAT registration when you set your pricing in the beginning, BUT if what you say is true and your customers are so price sensitive that the wouldn’t stomach +20%, I’d either suggest

— if you can’t make the flat rate scheme work, increasing by say 10% and eating the rest, with a view to growing the customer base to increase overall turnover or

— don’t pass the VAT threshold next year and deregister for VAT. Close the business for a month if you need to

Well, if you don't submit the first quarter on time you will have an 'interesting' estimated bill. So make sure you do submit it on time.

I run ads via social media and have a COGS for my products - so I’ll essentially save money from registering for UK VAT. But I’ll have to slap 20% tax on my products and I’m unsure how that will affect my sales / conversion rate

Curious how registering for UK VAT affected the profit of those here? How did it affect your finances?

For context on my situation, I am below the threshold at the moment, so I don’t need to register

Hi all, I run a small business that is soon to be VAT registered.

I'm asking here because the small business uk wasn't very useful last time i posted there.

I have a small question but i most likely already know the answer but I want to double check.

There are a few retail stores that i send products to on a "Sale or return" basis. This means l do not charge anything up front but when they sell the items they send me 50% of what the item sold for. Some of these stores are not VAT registered themselves therefore i cannot claim back any VAT from the VAT that they have paid on the product sale (unlike with one of the stores where i am able to).

So i want to double check am i fully responsible for 20% of what the product sold for or am I responsible for 20% of my cut.

I fear that it is 20% of what the product sold for but please do let me know if there is anything i am missing

So I accidentally registered for VAT despite being under the threshold, and am now facing a £4,000 assessment. Any advice?

I've been dealing with this for 3 months, and I'm really stressed about my VAT situation because it just keeps getting worse.

Last year I registered as a sole trader. I mistakenly registered for VAT even though my turnover was nowhere near the VAT registration threshold. I didn't do enough research myself, which was a huge mistake on my part. I had thought that VAT was an essential step in becoming a freelance sole trader.

For context, I work in Film & TV as an AD and Runner, also as a fashion and commercial model and part-time as a camera technician, all on a freelance basis. I only realised that I had signed up for VAT when I received the letter about my overdue VAT returns, stating that I owe around £900. I never charged VAT to any clients because I didn't realise I was supposed to.

Upon receiving the letter, I immediately called HMRC to see if they are willing to help me fix my issue and withdraw those returns but they only told me to deregister. So I hired a chartered accountant to help me sort this out, we drafted a letter to HMRC to request a cancellation and deregistration of VAT; for HMRC to withdraw my overdue VAT returns and remove any outstanding penalties fees.

After nearly two months of waiting, HMRC replied to my letter, but did not answer my request, only referring me on how to cancel my registration and dodged the request for the VAT returns and penalty fines. At the same time, HMRC had sent me numerous letters reminding me of the outstanding payments and also the moving the matter to BPO Debt Collection, which had mailed me and called me, I said to them that I'm disputing this claim.

So I decided to talk to my accountant and submit the figures for my VAT returns in order to deregister. However, my accountant came back to me with a figure of around £4,000, for basically a whole year of VAT returns, since July 2025.

I froze and realised that everything I had saved up for the past few years would potentially all be used towards fixing this one mistake. And to be frank, I simply cannot afford this.

In a moment of panic, I requested to cancel my registration through my online Tax portal. I was under the impression that I cannot cancel my registration without submitting the returns, yet it was approved and my VAT registration was cancelled today.

This however, did not wipe away the debt I owe and the potential £4,000 that I have to pay, I guess it just stopped it from progressing it any further.

I called HMRC again to beg them to see if there's any way I can mitigate or reduce the amount I have to pay, but they basically only said, 'Rules are rules, it was not just a wrong press of the button, and you consented to knowing the consequences by registering voluntarily.'

Is there any way I can appeal these VAT returns? tbh the penalties aren't that bad what is really killing me are those overdue VAT returns, if I go ahead and charge my clients the VAT only invoice, not only is it very likely to be ignored, it would also damage my relationships with them, and that would virtually be career suicide.

Any advice or has anyone gone through something similar?

I'm not sure if I'll be able to cross the £90K threshold in revenue for this year. I've just started and I'm assessing whether registering or not for VAT. I don't understand well what are the cons and what could be the benefit of registering other than the burden of sending reports to HMRC. I'm aware that some suppliers deduct the VAT from purchases if I'm registered for VAT. Any views would be greatly appreciated.

Pros - Can appeal to businesses you sell to, as they can reclaim the VAT You can reclaim VAT on supplies

Cons You have to charge VAT, which means increasing prices Extra admin burden (MTD) Paying an accountant extra

Just off the top of my head 

I only deal with vat registered businesses no residential, so this makes me more appealing as they can claim the vat back, I chose to go vat registered voluntarily for this reason, had I been dealing with primarily residential then I may have held off as that would make me more expensive.

It's a bit of extra admin, but as long as you're using an app then it's fairly straightforward.

I just look at that extra 20% as not mine and put it into a separate wallet in my banking app.

The best bit is you can now claim the vat back from purchases you make which can save you money.

 I own a small building company with another person, we are in our first year of business and doing well.Our usual mark when pricing jobs for supply labour and materials is 20% on top the cost we are buying it for. We currently have a very big project which we on the go and while doing this project we had to become VAT registered so obviously our costs to the customer increased another 20%. Since becoming VAT registered my business partner has only been charging our mark up on labour and not materials and says when we claim the VAT back it works out to us getting 10% back,therefore our costs are lower. I don't think this is a good decision as we don't know for sure how much VAT we will get back. For some more context we are working on a day rate for labour and don't need to price for materials as many of the decisions for the job haven't been made and things keep on changing. I don't mind our mark up margin being less because we are not taking on any risk with pricing the job correctly. The client is a multi millionaire and lives abroad the majority of the time and also has lots more potential work for us. My business partner says he wants to keep him sweet with not charging this extra mark up. Who is right and how do I go about discussing changing things with my partner?

Utter financial incompetence. No business sense. No financial acumen. No possible future.

EMPLOY AN ACCOUNTANT.

Was going to suggest the flat rate scheme too, you can read more about it here:

Essentially it allows you to capture VAT at 20% but you pay less than 20% to HMRC, the rate depends on the type of business. The downside is you cannot claim VAT on any expenses even if the supplier is VAT registered. It’s a much simpler way to do VAT returns too.

You have to list VAT at 20% but you could only increase your prices by the percentage you have to give to HMRC to help soften the blow.

If you need to but a van or other startup tools etc , its worth registering as you can claim the vat straight back

Hi, I have registered a company for VAT, and I just want to know if it is a big problem that I have made a mistake putting a 700k£ amount for estimated 20% business tax turnover in the next 12 months, but supposed to be £0 ☹️ as It is not even trading yet? Please Im so anxious, we will have to pay more in the future!

Thanks for any help!

My wife runs a grooming parlour.

I started working for her, as a bather and admin person. (i am not a groomer).

The business expanded and we got staff.. We didn't know how the VAT thing worked, (like literally everyone we knew), we thought the threshold was on profits not income! Only found out when it was close. Everyone we knew, all told us to avoid going over VAT threshold at all costs!! So we let a member of staff go and cut down on work load.

We started getting close again to the threshold as our prices had gone up (due to overheads going up). So as part of our plan was my missus handed the business over to me to own, and take over the employees. She went to start a school. There was some qualifications she needed and work out the whole lesson and work plan, so she started that, while also doing a bit of grooming work (she would still need model dogs to teach people on so didn't want the customers to leave while she set it up).

One of my staff left after a health issue got in the way of her ability to work. This kept me from the VAT threshold, my missus took up slack taking more dogs her side, making the school thing even slower.

started coming up fast on this threshold again, and my missus started facing a mental health issue making the school just a no go. I floated an idea past my accountant. I am not a groomer so i would do all the admin sort equipment and rent the tables to groomers instead (my current employee, and my missus). They said it could work. I figured it was a slam dunk with the employee, she would not really see a difference in work but would be about 40% better off money wise. It would also allow me to scale renting more tables out, so she could have been 60% better off!!

The employee didn’t like the idea of being self employed, she had illnesses and wanted the security of employment and sick pay, even though i told her about insurance. She decided to find work elsewhere (even though we said we would keep her on employed at the risk of taking a massive pay cut ourselves)

So the school is dead and buried, my missus has taken back over the grooming business and turned it Ltd. I have a side line business cleaning dogs teeth as she doesn't do that. She has one employee who just baths the dogs.

Looking ahead She is still going to be close if not just tipping over the VAT threshold.

We are at a loss of what to do? VAT registering is not common in this industry and literally no others in our area are VAT registered. We are a more professional setup on the high street, not in the garage or shed, so our prices are already higher than others due to overheads. The costs of overheads going up made us put a 10% price hike at the start of the year. And price hikes are when we lose customers,

We have 3 options i see...

1. Shed customers and stay under the threshold, (keeps the few customers we keep happy with the price, don't have to worry about extra tax records, simpler easier life.. but cant really expand, also feels utterly terrible letting people down and just bad business?)
2. Go VAT, keep the prices the same. (Keeps customers happy, No limit to earning or number of customers (bar how many we can fit in).. But will take home roughly £13k a year less! which for us is a LOT)
3. Go VAT, Put the price on the customers. (Upset Customers (this will be 30% price increase this year and we are already the most expensive in the area), Might lose too many to keep the business working?!?!, But No limit to earning more.. and would take home roughly the same as not going VAT registered).

I have spoke to 3 accountants, 5 Business owners, 1 Business advisor, and all of my friends (1 of which did business studies at uni).. and they're all saying, they don’t know what i should do, or, to avoid VAT if we can.. But a business help group on facebook says its really good to go VAT.. (they also say expect to lose customers when you put prices up though. soooo??)

Please can anyone give me some ideas or suggestions on what i could do or what i need to look at to make a decision.

-- I am also in the strange position at present where i need to shed customers either way because i don't have the staff to cover all the bookings now. And i am noticing an increasing problem that i just cant get rid of people! I tell them we cant groom their dog any more, and they just turn around and say, 'no worries, i will wait' or 'Well just your next appointment', even though they have been told just flat out, we are full and cant do their dogs. and i am telling them 2 or 3 times and they are still just not accepting it as an answer. sooooo maybe putting the price up might work, might not scare customers off?? I think the worry about losing customers, is if its pricing doing it then maybe if it does work, it might be all the really bad hard difficult customers that have been banned from everywhere else. We are currently shedding all the unreliable, or cheap skates who complain about price every visit, or any dogs that are fighting or biting or peeing and pooping to try have a nicer happier life.

This is not at all true. There is no expectation that you will have added VAT for goods. People will assume the price includes all taxes etc.

If you are selling to VAT registered businesses, they can reclaim the VAT you would add. The effect is that you would be more profitable (and/or, might be able to lower your prices). This is because you will be able to reclaim the VAT on goods and services provided to you, and the VAT charged on to your customer wouldn't affect them.

If you sell to businesses who are not VAT registered or people, the addition of VAT will just mean what you're selling costs more to them.

Have you had a look at the flat rate scheme and if it’s applicable?

So many issues here and best to speak to an accountant, you also don’t want to be caught up with IR35 once you push the contracts to your company.

My better half runs a small retail business and has just passed the VAT threshold. Many of her suppliers are also small businesses which are not VAT registered so she would not be able to claim anything back for goods she buys from them. Looking for advice on how best to deal with the the additional tax burden as putting up all prices by 20% isn’t viable for many of her customers and her margins are already mostly around the 40% area that are considered the minimum to make a worthwhile profit.