€37,500 in the case of services, and

€75,000 in the ase of goods.

These thresholds take effect from 1 May 2008

In the UK and Northern Ireland

Sales above £67,000 requires compulsory registration

In Ireland we differentiate between sales of services and sales of goods.

Why would you register for VAT if your sales are below the registration threshold?

When you set up in business your initial setup costs can include a lot of VAT.
You buy a computer it has VAT
You pay your accountant, he charges you VAT
You rent a premises, there may be VAT on it.

So in a startup you may be entitled to a VAT refund This will help your cashflow early in the business.

Comparison of not registering and registering for VAT
Not registered for VAT:
Cost of item 12.10
Selling Price 24.20
Profit 12.10

Registered for VAT:
Cost of item Net 10.00 Vat 2.10 Total 12.10
Selling Price Net 20.00 Vat 4.20 Total 24.20
Profit 10.00 (20.00 - 10.00) as Vat in not yours to keep

When not registered for VAT you make a bigger profit if you sell at the same prices
BUT
If you are selling to businesses who are registered for VAT and they can claim back the VAT you charge you could do the following
buy item for €10.00 excluding VAT
sell item for €24.20 excluding VAT
Profit = €14.20

Now you have made a bigger profit as the business you sold to can claim back the VAT you charged them. So when you were not registered for VAT it still cost them €24.20 as no VAT was charged and if you charge VAT they claim back the VAT and it still costs them €24.20.
The difference is that you can claim the VAT back on what you bought. So when you were not registered for VAT the item cost you €12.10, but when you are registered for VAT is costs you only €10.00 as you can claim the VAT back on the purchase.

The big disadvantage of registering for VAT is that you must prepare VAT returns. This means you must itemise out all the VAT on goods you buy and all the VAT on Sales you make. It requires more administration on your part and there are deadlines that must be met. If those deadlines are not met you may have to pay interest and penalties on late payment of VAT to the tax man.

Registering for VAT, decide as early as possible
When you start a business you need to look at your initial customer base. If you start off not charging VAT and then you pass the threshold for VAT registration you may have to increase your prices so as not to lose out.

Example:
A Hairdresser not registered for VAT charges €20 for a haircut
As there are no purchase costs the profit is €20

If the hairdresser now registers for VAT they either
A. Charge VAT on the €20 and charge €24.20 (VAT is 21%)
The profit remains as €20 as €4.20 is VAT which is not yours to keep
or
B. Charge €20 including VAT which is €16.53 net of VAT
The profit is now only €16.53
In the case of B. you are now making less profit.

So if you are starting in business examine carefully whether
1. You need to register for VAT
2. If you don't pass the thresholds would it still be worthwhile registering for VAT
3. When you do pass the threshold, how will you deal with the price changes required when you now charge VAT

Remember if you are VAT registered you can claim back VAT on most items purchased, so if for example you are starting a hairdresser salon you may have shop fitting expenses on which a lot of VAT could be claimed back.