As a business owner, you should carefully consider registering for VAT. While some businesses may need to register for VAT after reaching a certain turnover threshold, other businesses still have the choice.
Here, we discuss voluntary VAT registration and its advantages and disadvantages. Businesses of all sizes may benefit from VAT registration, for instance, but there is a fair amount of administrative work involved.
Understanding the pros and cons of voluntary VAT registration and the impact it can have on your business is important if you are considering it.
Firstly, what is VAT?
A VAT-registered business in the UK charges VAT on the majority of goods and services they provide. As well as imports from the EU and non-EU countries, certain goods and services are also affected.
Those whose businesses are VAT-registered charge VAT on both their commercial and non-commercial sales. Furthermore, these businesses are generally able to reclaim VAT paid on the goods and services they purchase.
Unregistered businesses cannot reclaim any of their VAT payments. VAT can only be charged or reclaimed if you are VAT registered.
When a business’ taxable turnover (i.e., its overall earnings, not profits) for the previous 12 months exceeds £85,000 or if it anticipates exceeding that figure in the next 30 days, it is legally required to register for VAT.
- It is possible to reclaim VAT on most goods and services purchased from other businesses
- HMRC will allow your customers to reclaim VAT if they are VAT-registered businesses. This allows you to maintain your competitive prices while recovering VAT from your customers.
- A small business may appear larger and more established than it is. Customers, lenders, investors and suppliers are likely to assume the company’s turnover exceeds the VAT registration threshold, making this attractive to them.
- Businesses registering for VAT are given a VAT number. Business stationery, such as invoices, letterheads and websites, can display this information. Other firms may be attracted to this as well. Many will not consider doing business with a non-VAT registering entity, since it’s considered too small.
- It is possible to backdate voluntary registration by up to four years if sufficient evidence can be provided to HMRC. Therefore, a business may be able to reclaim VAT paid on equipment it is still using
Although VAT registration offers many benefits, it also has some drawbacks:
- Customers who are not VAT registered may find goods and services less attractive if the price of the final sale is unreasonable or overpriced.
- When businesses sell more goods and services than they pay in VAT on goods and services they purchase from other businesses, they may be hit with a high VAT bill from HMRC.
- Registering for VAT means extra paperwork and administration. It is the responsibility of businesses to keep all VAT invoices and receipts, to maintain VAT accounting records, and to file VAT returns quarterly (i.e., every three months).
If you do decide to register your company for VAT, you can get the application online by going on the GOV website. You can register and also create a VAT online account.
Whatever you decide to do with regards to VAT registration, it’s always advice you do seek professional advice from an experienced accountant near you who will be able to help you.