What GST registration actually costs you
Registering is compulsory above a turnover threshold and optional below it. The optional case is where people get it wrong in both directions.
On this page
- Turnover test
- Sales, not profit
- Below the threshold
- Optional
- What decides it
- Whether your customers claim it back
The threshold is a turnover test, and it looks forward
Registration becomes compulsory once turnover passes Inland Revenue's registration threshold in any twelve-month period, and that includes a period you reasonably expect to pass it in. Waiting until the year is over to find out is the wrong way round: the obligation can start before the figure is confirmed. Inland Revenue state the threshold and what counts towards it on their registering for GST guidance. This guide names that page rather than restating the figure: a turnover number copied from somewhere else and presented as Inland Revenue's would be exactly the unsourced figure this site refuses to carry.
Turnover is not profit. A business can be over the threshold on its sales while its costs leave it with little or nothing to show for the year.
Registering voluntarily is not free money
Registered, you claim back the GST on what you buy. You also add 15% to what you charge, and you file returns. Whether that nets out in your favour depends on one question: can your customers claim the GST back? Inland Revenue, charging GST (opens in a new tab).
Selling to registered businesses, the extra 15% costs your customers nothing, and claiming back your own input tax is a straight gain. Selling to the public, the 15% either comes off your margin or makes you more expensive, and the input tax has to cover that. Inland Revenue, charging GST (opens in a new tab).
The part that is not about arithmetic
Registration means the GST you collect is never your money. It arrives in your account, sits there looking like income, and leaves again at return time. A business that fails here can fail on that rather than on the calculation.
What registration costs in time, not money
When registering for GST, a business chooses how often it will file returns and which accounting basis it will use. Filing requires the relevant sales and purchases to be recorded for the return period. Registration therefore brings reporting work as well as a tax calculation. Inland Revenue, registering for GST (opens in a new tab).
Deregistering is possible if turnover falls back below the threshold, but it is not free either: assets the business still holds and claimed GST on are treated as though sold at deregistration, and the GST on them comes back. Registering voluntarily and reversing the decision later is therefore not a costless experiment, which is an argument for deciding it once, deliberately.