Value Added Tax (VAT) is charged on most of the goods and services provided by VAT-registered businesses in the UK, along with some goods and services imported from non-EU countries, which will be imported into the UK from other EU countries. VAT registered businesses add VAT to the sale price of goods and services when they sell to commercial and non-commercial consumers. Moreover, they can reclaim the VAT they have paid when buying goods or services. You should be registered for VAT to charge or reclaim it on anything you sell or purchase.
The advantages of VAT registration:
- The VAT can be applied to the sale cost of almost all goods and services offered.
- The VAT can be reclaimed on most goods or services purchased from other businesses.
- Small businesses can offer the appearance of being bigger and more established, which can seem attractive to clients, lenders, investors, and suppliers, who will assume their turnover is more than £85,000, as the businesses are VAT registered.
- Companies registered with VAT are provided with a VAT number. This can be displayed on invoices, letterheads, websites, and other forms of business stationery that can be lucrative to other firms, the majority of which will not be willing to get involved with a company that is not VAT registered and, therefore, consider to be small.
- Voluntary registration can be outdated by up to four years if HMRC has been supplied with enough evidence, this implies that businesses may be able to reclaim VAT paid on equipment it is still using.
The disadvantages of VAT registration:
- The VAT can hinder the appeal of goods and services to customers who will not be VAT registered, mainly if the final cost of the sale is overpriced or overpriced.
- Businesses can get a huge VAT bill from HMRC if they generate more VAT from goods and services sold than the VAT paid on goods and services bought from other businesses.
- More paperwork and supervision is inescapable of VAT registration. Businesses need to keep all VAT invoices and receipts, maintain VAT accounting records, and file VAT returns quarterly.