When is VAT registration justified financially?

[Hummingbird1]

I am self-employed (sole trader) for the past four years having spent the previous twenty years working in the comfort of a state body. Most of my work is in providing a service to two voluntary organisations in the disability sector. My turnover has build up gradually from an initial €20k to a surprising €42k in 2008. This is pleasant in one way but, as I am not currently registered for VAT and have realised that my turnover is over the threshold, has given me a lot of headaches. My turnover in 2007 was €32k and I didn't expect it to surpass the threshold in 2008 (no doubt, Revenue won't believe me on this!)
My business activity has probably peaked at this level or would need extra expenditure on promotion to take it to a new level and in the current economic climate the expected extra income may not materialise.
Would my calculations be right if I were to conclude that at an expected turnover of say €42k - €45k and rightly registering for VAT, one would be no worse off financially in scaling back to a turnover of slightly under the threshold of €37,500 and not registering for VAT.
If this were the case, there is a terrible dis-incentive to expand a business unless perhaps a €50k+ turnover could be achieved.

 

[Elphaba]

Have you checked the service you provide is vat exempt? If not what rate of vat would you pay? You should calculate how much vat you would pay
on a turnover of 45k I suspect its about 12.5%? Final figure also depends on vat you pay on your expenses. Very broadly, you subtract the vat on your expenses from the vat on top of your sales and thats what you pay over. Your situation could be more complex than this. Please ask your accountant, if you dont have one, get one. You are far better to be totally above board, you will sleep better at night. Also consider do you really want to work at curtailing the growth of the business? always looking over your shoulder for the tax man, or work at growing the business, consider taking a part time worker, seems scary, well you've got the business to the stage its at, very well done, why stop there? With very careful planning, you could grow the business, which seems like a natural progression. It may work to your advantage if you employ someone on a part time basis in the future, there are loads of people out there needing work, it could give you more leisure time. It is very important to plan ahead, but right now sort out the vat issue. If you register now, will you be clobbered for 2008? Find out tomorrow.

 

[Hummingbird1]

Thanks for that, Elphaba. It's not clear from VAT documents whether some of my work is VAT exempt, I will put that question to Revenue.
Revenue in their VAT document, make a distinction between professionals such as physiotherapists, chiropodists, chiropractors etc who are VAT exempt and others in a related area such as Sports Therapists who must charge VAT at 13.5%. It appears that a professional qualification is required in this medical area for the practitioner to qualify for VAT exemption. I suspect that I would pay VAT at 13.5% or perhaps exempt if Revenue saw me fitting their description "professional services of a medical nature".
Thanks for your support, I have indeed built up a nice business in a niche area but I had been undecided recently about the expansion route and the VAT thing has now added a bit more complexity to the decision making process.