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Small businesses could improve their credibility and reputation by deciding to become VAT-registered.

All companies with a turnover above £79,000 per year must register for VAT, but it is optional for any business with sales below this level.

Our Tax and Small Business Manager, Martyn Bramwell, said: "We are often asked whether small businesses need to, or should, register for VAT.

"This depends on a multitude of factors and it is important to consider the wider implications.  But there are definitely potential benefits.

"Another advantage of being VAT registered is that you can recover VAT on your purchases, as long as suitable VAT invoices are available."

But Martyn said there were also disavantages of the scheme for certain types of companies.

"Once you are VAT-registered, you must charge VAT on any relevant goods or services.  This means adding 20% to the price of standard rated goods.

"If most of your customers are VAT-registered, this will not affect them as they can claim it back.  But if your customers are private individuals or non-registered businesses, they will not have this luxury and you may lose custom.

"Registering for VAT also results in increased paperwork, as you are required to submit returns every three months and maintain demonstrably accurate records.

"However, if you only make a few purchases, you may benefit from the VAT flat rate scheme for small businesses, which simplifies the VAT records you need to keep.

"The most important thing before making a decision over VAT registration is to take professional advice.  HM Revenue and Customs operate a range of schemes, and your accountant will be able to advise on the best course of action.

Martyn Bramwell, our Tax and Small Business Manager