VAT (Value Added Tax) is a tax that is charged on goods and services in the UK. Many businesses are required to register for VAT if their turnover exceeds a certain threshold, but there are some benefits and drawbacks to being VAT registered.
Pros of Being VAT Registered
Output Tax:
You can charge VAT on the goods and services you sell. Known as ‘output tax’. This can help improve the business cashflow raising income with the addition of VAT on invoices.
Input Tax:
You can reclaim back tax paid on goods or services used in the business. This is known as ‘input tax’. This can help reduce overall costs and improve cash flow for businesses. You would be eligible for claiming a VAT refund if you provide any zero-rated VAT services or your ‘input tax’ is greater than the ‘output tax’.
Improved Credibility:
Being voluntary VAT registered can help make your company seem larger to improve the credibility of a business as it demonstrates that they are a legitimate business that complies with all relevant laws and regulations. This helps when dealing with VAT registered businesses. Displaying a VAT number on stationery and websites may encourage larger firms to consider doing business with your company. Many big firms, particularly those in the finance sector, refuse to work with non-VAT registered businesses.
Cons of Being VAT Registered
Compliance Requirements:
As with any taxation system, there are compliance requirements that must be met when registering for VAT. This means that businesses must keep detailed records of all transactions related to their business, which can be time-consuming and costly.
Costs:
Although businesses may be able to claim back VAT, they may also incur additional costs such as professional accounting or legal advice to ensure compliance with all relevant regulations.
Administrative Burden:
Registering for VAT requires businesses to complete quarterly returns and submit payments on time, which can add an additional administrative burden on top of other day-to-day tasks required by the business.
Talk to us today about how we can help you – mailto:info@hobbsthomas.com
