Pros and Cons of Being VAT Registered
As a new company owner, you may be wondering whether being VAT Registered is the right direction for you to be heading in. While it's true that once your Taxable Turnover reaches (or exceeds) £85,000 that you must register for VAT, you may feel as though it's the right thing for your company to voluntarily register before this point.
Therefore this blog post aims to highlight the Pros and Cons of being VAT Registered when it's a voluntary option for your company.
First, What is VAT?
VAT (Value Added Tax) is a consumption tax that's placed on a product whenever value is added at each stage of a supply chain. Many UK businesses will find that the majority of their products will have a VAT charge on them once they are VAT Registered. VAT may also be added to products that have been imported from some EU and non-EU countries.
For more information on VAT and how to register, please check out: VAT - What is it and how do I register?.
So now we know what VAT is, what are the Pros and Cons of being VAT Registered?
Pros of being VAT Registered
When you're contemplating becoming voluntarily registered for VAT, some of these reasons may sway your decision towards it:
- You can apply VAT to the sale of almost any product or service.
- You can reclaim VAT on most products you purchase from other companies
- It can be good for your marketing - seeing that a price is +VAT can give more credibility to the company in question.
- Some bigger businesses will feel more comfortable working with VAT Registered Companies - they may see non-registered companies as being too small to suit their needs.
- Companies who register for VAT on a voluntary basis can backdate their registration by up to 4 years in order to reclaim VAT paid on equipment they are currently using. However, you will need to supply evidence of this to HMRC.
But as with most things in life, there are two sides to the coin. This can mean there are reasons you shouldn't become registered.
Cons of being VAT Registered
If you feel that the following cons outweigh the pros of registering for VAT, then maybe you should reconsider registering.
- Some of your suppliers may not be VAT Registered, so you're unable to claim back the VAT on purchases from them.
- You may find that you're left with a large VAT bill if you regularly generate more VAT than what you're able to reclaim.
- VAT Registered companies need to maintain stringent administration duties, especially for the recording and documenting of VAT invoices and receipts.
How do I register?
You can register online, although there are exemptions to this. If you meet one or more of the exemptions, you must register by post (there's a list on the Gov.uk website). The application form, called VAT1, can be downloaded on the gov.uk web site too, along with it's guidance notes. You can find these here.
You have two options when it comes to registering online - you can either register directly with HMRC on their website, or you can use an agent. The Company Wizard has a sister site, VAT-Registrations.co.uk, which can help you through the process. This includes using our experience and expertise to ensure the process is as smooth as possible for you.
You may find that your accountant may be able to help you register for VAT too.
When you're thinking of voluntarily registering for VAT, there are several things you need to consider before taking the plunge. Hopefully this blog post has highlighted some of the things you'll need to think about so that you can make the decision and begin the process as smoothly and painlessly as possible.