THE VAT PACK

The authorities are prepared to give VAT back to businesses under one condition: you collect some tax on their behalf.

Registering for VAT is a decision that should be made early on. Anyone with a turnover above pounds 48,000 has no choice: they must register and charge VAT on their sales. But even below that threshold, registration has its advantages.

Customs and Excise appears to encourage "voluntary" registration, and this is a key point. Businesses that are registered for VAT can reclaim the tax, so a VAT invoice presents no problems to them.

The argument against registration is the paperwork. VAT accounting used to be more onerous than tax, but the gap has narrowed with the advent of the Inland Revenue's self-assessment system. The difference is that VAT has to be paid quarterly, but updating the accounts should be a discipline rather than a burden.

Registration saves money, in terms of the VAT reclaimed, and businesses can earn interest on the VAT they have collected but are not due to pay. With the VAT rate at 17.5 per cent, the savings on anything from a phone bill to a computer are significant.