Will voluntarily going VAT registered save me money?
Fast answer: voluntary VAT registration can save you money, but only in the right circumstances.
For some businesses, registering early improves cashflow and reduces the real cost of expenses. For others, it quietly eats into profits through higher prices, extra admin, and unhappy customers.
If adding VAT is unlikely to affect your sales, and you have meaningful VATable costs, voluntary VAT registration may make financial sense. If your costs are low and your customers are price sensitive, it often costs more than it saves.
This guide explains how VAT works in practice, the real costs involved, how pricing is affected, and which industries are more likely to benefit, so you can decide whether voluntary VAT registration makes sense for your business from a tax and commercial point of view.
How VAT actually works (in plain English)
VAT is not free money, even though it can feel like it when it hits your bank account.
- You charge VAT to your customers (usually 20%)
- You pay VAT on your business costs
- You send the difference to HMRC
Example:
- You invoice a customer £1,000 plus £200 VAT
- You have £120 of VAT on business costs
- £200 collected minus £120 paid out means £80 goes to HMRC
That £80 was never yours. You were just holding it temporarily.
When do I have to register for VAT?
- VAT registration becomes mandatory once taxable turnover exceeds £90,000 in any rolling 12‑month period
- You can register voluntarily before reaching that threshold
Most of the confusion sits around whether registering early is actually worth it from a pricing and tax perspective.
Will VAT put customers off or reduce sales?
This is usually the biggest concern, and rightly so.
If your customers are VAT registered:
- They can usually reclaim the VAT you charge
- VAT often has little impact on buying decisions
- Being VAT registered can even make you look more established
If your customers are not VAT registered, VAT directly affects pricing.
If you have very few VATable costs, prices may need to rise by close to 20% to protect margins. Where you can reclaim VAT on materials or other costs, the real increase might be lower – often closer to 13%.
That difference often decides whether voluntary VAT registration makes sense.
Being VAT registered comes with extra costs
Even if the VAT itself largely washes out, the admin costs do not.
Once VAT registered, you must submit VAT returns digitally using accounting software. As a rough guide:
- Accounting software is often around £35 + VAT per month
- VAT return preparation and review commonly costs around £150 + VAT per quarter, depending on complexity
On top of this, there is simply more admin time spent invoicing correctly, checking receipts, and keeping VAT records tidy.
VAT admin is manageable – but it does not do itself.
If sales stay the same, does VAT actually save me money?
This is where the numbers really matter.
You need to compare:
- The VAT you expect to reclaim on business costs
- Against the extra admin time and professional fees that come with being VAT registered
For some businesses, reclaimed VAT comfortably outweighs the extra costs. For others, it simply does not.
A useful rule of thumb is that if over 60% of your customers are VAT registered and materials or other VATable costs make up a large part of your spending, voluntary VAT registration is usually worth reviewing. Where costs are low and customers are price sensitive, VAT registration often costs more than it saves.
Example - Where VAT registration can work well (builder)
A builder working mainly for VAT registered developers or contractors often finds voluntary VAT registration helpful.
- Materials usually make up a large part of costs
- There is significant VAT to reclaim
- Pricing is normally discussed excluding VAT
Example:
- Annual turnover: £70,000
- Material costs: £30,000
- VAT on materials: around £6,000
By being VAT registered, that £6,000 can be reclaimed. Against this, typical ongoing VAT costs might look like:
- Software: £420 per year (£35 per month)
- VAT returns: £600 per year (£150 per quarter)
Total admin cost: roughly £1,020 per year.
In this scenario, reclaiming £6,000 of VAT while incurring around £1,000 in admin costs means the business is significantly better off overall from a tax perspective.
Example - Where VAT registration often does not work well (consultant)
A consultant selling services directly to individuals or small non‑VAT‑registered businesses often finds voluntary VAT registration unhelpful.
- Costs are usually low
- There is little VAT to reclaim
- Prices increase for clients who cannot reclaim VAT
Example:
- Annual turnover: £70,000
- Annual costs: £5,000
- VAT to reclaim: around £1,000
VAT registration would either require prices to rise by close to 20%, or force the consultant to absorb some of the VAT. If prices are held steady to stay competitive, profits could fall by around £11,500, while ongoing VAT admin costs of roughly £1,000 per year still apply.
In this situation, VAT registration reduces profitability rather than improving it.
A simple cashflow tip if you are VAT registered
Business tip: treat VAT as a short‑term holding account, not spare cash.
Because VAT is usually paid quarterly, there is often a gap between collecting it from customers and paying it to HMRC. If you set it aside immediately and keep it in a high‑interest business savings account, you can earn a small amount of interest before it is due.
It will not change your life - but it rewards good cashflow discipline. Just remember, HMRC are patient, but they are not forgetful.
Industries more likely to benefit from voluntary VAT registration
Voluntary VAT registration is often worth considering where businesses have higher VATable costs and deal mainly with VAT registered customers.
It commonly works well for:
- Builders, trades, and construction businesses with significant material costs
- Property developers and property maintenance companies
- Manufacturing, engineering, and fabrication businesses
- B2B professional services working mainly with VAT registered clients
- Growing businesses approaching the £90,000 VAT threshold
In these industries, reclaiming VAT on costs can significantly reduce the real cost of doing business, while VAT charged to customers usually has little impact on sales.
When voluntary VAT registration often does not make sense
Voluntary VAT registration often does not stack up where costs are low and customers are highly price sensitive.
It is often less suitable for:
- Consultants, coaches, and advisors selling time rather than products
- Therapists, designers, photographers, and other service‑based businesses
- Beauticians, hairdressers, and personal care businesses
In these cases, there is usually very little VAT to reclaim, but prices still rise for customers who cannot reclaim VAT themselves.
Side hustles and lifestyle businesses can also struggle to justify VAT registration, particularly where staying competitive on price matters more than reclaiming small amounts of VAT.
Voluntary VAT registration - the bottom line
Voluntary VAT registration is not about saving tax in isolation. It is about how your business actually operates day to day.
It comes down to:
- Who your customers are
- How much pricing power you have
- What your cost base looks like
- How much admin you are comfortable taking on
- Where the business is heading
For some businesses, registering early is a smart move that supports growth and cashflow. For others, it adds complexity and cost without much benefit.
Thinking about going VAT registered? Run the numbers first. Registering is easy – unwinding it later can be frustrating and expensive.
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