1. The Threshold: Know When Registration Becomes Mandatory
For UK businesses, you must register for VAT when your taxable supplies exceed £90,000 in any rolling 12-month period. GOV.UK+3Money+3MSA Accountants+3
Similarly, if you expect your taxable turnover to exceed that amount in the next 30 days, you must register. Moore South+1
So, if your hire income (less any exempt items) is approaching that £90k mark, you need to be planning for VAT.
Tip for a bouncy-castle business: Monitor the rolling total (not just financial year) for your hire revenue. If you’re nearing £90k, start talking to your accountant now.
2. The “Add 20%” Myth vs Reality
When you register for VAT:
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You’ll need to charge standard-rate VAT (typically 20%) on your taxable supplies (unless some supplies are zero-rated, but hire of inflatables is normally standard-rated).
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BUT — you will also be able to reclaim VAT on many of your purchase costs (equipment, consumables, maintenance costs, etc), subject to the normal rules.
Because your cost base (blowers, inflatables, accessories, transport, cleaning, etc) already includes VAT, you may not need to add a full extra 20% margin to your hire rate. In many cases you might only need to increase your price modestly (e.g., around 8-10%) to net into a similar profit margin.
In short: you don’t automatically have to pass on the full VAT burden to customers. And as you pointed out: many larger customers prefer to deal with VAT-registered suppliers because they reclaim input VAT and don’t want “trapped” VAT costs.
3. Corporate Clients & Perception
For a business like yours — which sells blowers, inflatables, has hire companies as customers, and may supply to corporate or event clients — being VAT-registered can be a competitive advantage.
Large businesses often prefer working with VAT-registered suppliers so they can reclaim the VAT. If you remain non-VAT registered while your competitor is VAT-registered, you might price lower, but your corporate customers may avoid you because you represent a non-reclaimable cost. In effect, your non-VAT-registered status could be hindering growth.
4. The Flat Rate Scheme: A Simpler Alternative
Once you register for VAT, you have the standard scheme (charge VAT, reclaim input VAT) or you might consider the VAT Flat Rate Scheme (FRS), which simplifies the process though may limit input VAT reclaim.
Key facts for 2025:
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Businesses can join the Flat Rate Scheme if their VAT taxable turnover is £150,000 or less (excluding VAT). Qdos+2Qdos+2
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When you’re in the scheme, you pay a fixed percentage of your VAT-inclusive turnover to HMRC, instead of calculating output VAT minus input VAT. GOV.UK+1
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Otherwise your rate depends on your business sector. For example: the “hiring or renting goods” sector has historically been 9.5% under FRS. GOV.UK
For a bouncy-castle hire business (equipment hire, costumes?), the “hiring or renting goods” flat rate of around 9.5% could apply — so effectively you charge VAT to customers but pay just ~9.5% of your VAT-inclusive turnover to HMRC (and you cannot reclaim normal input VAT under FRS except for capital assets over £2,000) FreeAgent+1
Advantage for you: If your costs include a lot of VAT-incurred purchases (inflatables, equipment, transport, cleaning materials), the standard scheme might serve you better, because you can reclaim input VAT. But if your costs are relatively low and you prefer simpler admin, FRS can work.
5. How this Fits a Bouncy Castle Hire Business
Let’s apply this to your business: you manufacture inflatables, sell blowers, and supply hire companies. So:
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You buy equipment (inflatables, blowers) inc VAT — input VAT you’d like to reclaim.
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You hire out inflatables or sell to hire companies.
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You may also supply to corporate clients who prefer VAT-registered suppliers.
If you register for VAT:
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You can reclaim input VAT on your purchases (helpful because your cost base is high).
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You charge VAT to your customers (and include it in your pricing strategy).
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You’re aligned with corporate clients’ preference for VAT-registered suppliers.
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You’re not necessarily forced to raise prices by a full 20% — you just need to factor in the VAT and your margin, knowing you reclaim input VAT.
If you join FRS:
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You charge VAT, pay a fixed rate (e.g., ~9.5%) on your VAT-inclusive turnover to HMRC.
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You cannot reclaim input VAT on most purchases (unless capital assets > £2,000).
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Simpler admin, but you may lose out if you have large input VAT that you’d prefer to reclaim.
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One tip is to bulk invoices upfront such as fuel and admin, accountants fees ect into sums larger than £2,000
6. The “Retro Reclaim” Opportunity
One under-used tip: if you register for VAT, you may be able to claim back input VAT on purchases made up to 4 years prior to your registration date — provided you were making taxable supplies at that time and meet the conditions. This can be a substantial benefit if you purchased a lot of equipment in the lead-up to registration.
7. Practical Steps & Price Strategy
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Monitor your rolling taxable turnover. If you’re getting close to £90,000, prepare to register.
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Check your cost base: if you have large VAT-incurred purchases (equipment, consumables, hire gear), the standard scheme likely delivers greater benefit.
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Model both options: standard scheme vs FRS. Look at your input VAT vs your margin.
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When you register: if you anticipate higher turnover growth, aim to communicate to customers that you’re VAT-registered (which may boost credibility).
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Update your pricing: you might not need to raise hire rates by a full 20% — maybe only an 8-10% increase will neutralise the VAT impact and preserve margin.
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Keep excellent records: VAT registration brings obligations (digital record-keeping, returns, etc).
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Speak to your accountant: for companies like yours with significant equipment purchases and B2B clients, tailor the strategy.
8. Summary: VAT Isn’t Your Enemy
In fact:
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If your cost base includes a lot of VAT-incurred purchases, registering for VAT and using the standard scheme can be beneficial.
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Even if you move to VAT, you don’t need to automatically raise prices by the full 20% — you just need to be strategic.
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Being VAT-registered can improve your credibility with hire companies and corporate clients.
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If you prefer simplicity and your costs are low, the Flat Rate Scheme offers a simplified alternative — but trade-offs apply.
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Don’t let the threshold stop you from growing. If you plan ahead, VAT can support growth rather than hinder it.
As always, this is designed for information only and does not constitute financial advice. Always check with HMRC or an accountant first
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