Media Clinic: Should I be VAT registered?

THE other week, the allmediascotland Media Clinic posed a question for Scotland’s media community to help answer.

One question was posed and one answer was received.

The question was: Should I be VAT registered?

The answer offered – for information purposes only and should not be regarded as binding or legal advice – is from Diane Holden, a business manager with FW Accounting, accountants who specialise in providing services to freelancers, consultants and contractors.

Legally, the threshold for registering for VAT with HMRC is £77,000. If you have supplied taxable* goods or services amounting to more than £77,000 in the last 12 months, or if you expect your turnover to exceed £77,000 within the next 30 days, you have 30 days to register for VAT to avoid incurring penalties.

The VAT registration process is relatively simple and can be done in less than 30 minutes via HMRC online services.

Some of our clients request to register for VAT voluntarily. This is not as crazy as it sounds. Registering voluntarily could be of benefit to you.

Who are your clients? If they are largely VAT-registered businesses, then financially, whether you are registered or not, will make no difference to them. However, if your clients are ‘domestic’ consumers, not VAT-registered and unable to claim back the cost of the VAT part of your invoice, then you may find your quotes are less competitive than other non-VAT registered quotes they receive.

However, the flip side of this is that if you realise that, ultimately, your projected turnover dictates that you will have to VAT register, you may as well do so sooner rather than later to avoid what some of your clients may see as a 20 per cent price hike.

Many businesses perceive ‘image benefits’ from VAT registration. Whether this holds true or not, one thing is for certain: if you are not VAT-registered, your turnover will be less than £77,000; whereas if you are VAT-registered your turnover could be higher than £77,000.

When starting a business, you often need to buy a great deal of equipment, some of it high cost, one-off purchases. It could be really useful to know that you will be able to claim back the VAT on these purchases.

Once registered, you will be able to reclaim VAT on costs where you are charged VAT by suppliers.

Likewise your customers, if VAT-registered, will be able to reclaim the VAT on your charges.

Finally, there are often savings to be made if you are eligible to join the Flat Rate VAT Scheme (FRVS). Under this scheme, you calculate your VAT payments as a percentage of your total VAT, minus inclusive turnover. Completing VAT returns is simpler but not everyone is eligible to join or would benefit from registering to use this option. You can read more on this scheme here, and discover what the FRVS percentage applicable to your line of business is.

If you are uncertain whether VAT or FRVS is right for you, why not chat to a friendly accountant who will be delighted, I’m sure, to discuss your options with you.

* There are certain goods and services not covered by VAT; these would be considered non-taxable goods and services. Find out more here.

Our next question for the Media Clinic is: What’s the best way to start working in radio, probably the production side rather than presenting or journalism (though I am open to that as well). Should I go to college or university or…? I am 19 years old and, except for a couple of temporary jobs, have been mostly unemployed since leaving school a year ago. I have five Highers.

If you would like to suggest an answer – in the spirit of camaraderie – please do send it to us, here, for possible publication on October 11.