Would I be better off registering for VAT?

If your turnover is over the VAT threshold of £90k* you must register for VAT but if your turnover is under the threshold you can register voluntarily.

Generally you will be better off registering for VAT if your business mainly makes B2B sales to VAT registered businesses and worse off if it makes B2C sales or sales to non-VAT registered businesses. The reason for this is the effect of VAT on your perceived price in these two scenarios.

For B2B sales adding 20% VAT to your invoices has no impact on the perceived price to your client because most businesses are VAT registered and will be able to reclaim the 20% VAT paid via their VAT Return. The advantage for you is that you can now also reclaim VAT paid on purchases via your VAT Return.

However with B2C sales, the customer will not be VAT registered and therefore the 20% VAT will be seen as a price increase. If the customer is prepared to pay 20% more you would still be better off staying out of VAT because you could simply increase your price and pass nothing on to HMRC.

*Correct at time of writing