Whereas some smaller businesses with an annual turnover of £85,000.00 or less can choose whether to become VAT registered and register on a voluntary basis, others which have reached or exceeded this turnover level are required by law to register for VAT. If you are in the process of deciding whether being VAT registered is right for you, you may also wish to take into consideration the pros and cons of this decision. After all, value added tax (VAT) is a consumption tax that’s placed on practically all goods and services these days, at each stage of the production process. Therefore, is it worth it to be VAT registered and what do you get out of it? Let’s explore the answers in more detail below.
Becoming VAT registered: pros and cons
So, without further ado, we first launch into the pros followed by the cons of being VAT registered. Take a look.
Pros
Here are some of the perks of being VAT registered:
- Input Tax Reclaim: VAT-registered businesses can reclaim the VAT they have paid on purchases from other VAT-registered companies. This can significantly reduce the overall cost of goods and services acquired for the business.
- Credibility and Trust: Being VAT registered can enhance the reputation of your business. It demonstrates that you are a legitimate and trustworthy entity, as VAT registration is often seen as a sign of professionalism and financial stability. This can be particularly important when dealing with larger clients, lenders, insurers, and suppliers who prefer to work with VAT-registered businesses.
- Business Opportunities: VAT registration can open up new avenues for business growth. Many government contracts, tenders, and partnership opportunities require businesses to be VAT registered. By registering for VAT, you may become eligible for these opportunities, allowing you to expand your customer base and increase revenue.
- Cash Flow Improvement: When a business is VAT registered, it adds VAT to the prices of its goods or services. This means that the fees charged to customers will be higher, and the additional VAT collected can help improve the cash flow of the business.
- Voluntary Registration Backdating: If you choose to register for VAT voluntarily, you have the option to backdate your registration for up to four years. This allows you to claim VAT on eligible purchases made during that period, which can result in significant savings. However, it is important to note that evidence must be provided to HMRC to support these claims.
Cons
And like most things in life, there are downsides to every coin.
- Inability to Reclaim VAT: If you purchase goods or services from suppliers who are not VAT registered, you will not be able to reclaim the VAT paid to them. This can increase your overall costs and reduce the potential benefits of VAT registration.
- Potential VAT Liability: Depending on the nature of your business and the VAT rates involved, there is a possibility of generating more VAT than you can reclaim. This could result in a hefty VAT bill, especially if your sales predominantly involve zero-rated or exempt goods or services.
- Increased Administrative Burden: VAT registration comes with additional administrative responsibilities and record-keeping duties. You need to ensure accurate and timely VAT calculations, maintain proper VAT accounting records, and submit VAT returns to HMRC every quarter. Failure to comply with these requirements can lead to financial penalties.
- Pricing Adjustments: Registering for VAT may require you to adjust your prices to account for the VAT rate. This can make your products or services appear more expensive to customers, potentially leading to a loss of business or the need to compete with lower-priced alternatives.
- Complexity and Professional Assistance: Managing VAT can be complex, especially as regulations and rates may change over time. It may be necessary to seek professional assistance, such as outsourced bookkeeping services, to ensure accurate VAT compliance and reporting.
Professional outsourced bookkeeping services in London
Although it may appear complex, with the right help at your side, your VAT returns will always be on track. All you need are accurate and correct VAT return services carried out by experienced professionals. Place your trust in us and we’ll help guide you through the process and ensure everything on your business’ part is as legit as it could be. Get in touch with us today!