Value-added tax, or VAT, is a tax that Her Majesty’s Revenue and Customs collects (HMRC). It is a charge placed on products and services. 20% is the typical VAT rate. A reduced rate of 5% and a zero rate of 0% are both available. Most things will have their taxes collected at the usual rate, but some businesses, like energy services, will have their taxes collected at a lower rate.
Now that you know you don’t have to, you might be questioning why you would want to register to pay a tax. Many companies would gain from optional VAT registration.
What are the benefits of being VAT registered?
Businesses that are registered can profit from a variety of things. They may not meet the requirement, but they are still eligible to benefit from registration’s advantages.
Your business image improves
One of the biggest advantages for VAT-registered businesses is this. It increases the value of a company. Even if you do not require mandatory registration, the effect is the same. People are aware that companies that register for mandatory VAT do so because it increases income. Even the smallest limited business might look to be a major firm thanks to this straightforward registration process. Being VAT-registered will suggest to some that your business generates at least £85,000 in revenue because the VAT threshold is at least that amount.
Additionally, it might boost overall business. Some business owners will only want to collaborate with legitimate companies. Any non-registered companies looking for new customers will be rejected. Being registered signals to other businesses that you can send accurate VAT invoices. This plays a crucial role in business-to-business interactions. Larger companies are aware that sending this pertinent documentation from VAT-registered companies is not a problem.
You may receive VAT refunds
Taxes typically conjure up images of money being paid to the government. The situation can change if you volunteer to register for VAT. The possibility to request VAT refunds can be advantageous. You can claim it back on the things your company buys. On services purchased throughout the year, your company may also claim it. The amount you can reclaim may be substantial if your company has incurred significant expenses over the year. After paying these fees, you can receive a sizable refund when you file your VAT return.
You can claim past VAT
Your company can be eligible to receive VAT from the previous four years after completing the registration process. The items must still be in use to be claimed back. This can yield a sizable return depending on the type of business you’re doing. However, your company must have been in operation for those four years to be eligible to make this claim. Additionally, you must be able to present VAT invoices and records from that time.
You are given a registration number
Even if it seems insignificant, this is a big matter. It has to do with the first advantage of a better image. However, it goes beyond the reputation of your company. The image of a small business owner can be greatly improved by having a VAT number. It demonstrates your value as a business owner. It increases your credibility and fosters client trust.
Are There Any Disadvantages?
There are a few potential drawbacks of VAT registration. It relies on your company’s requirements, therefore, keep the following things in mind:
The cost of administration and bookkeeping may rise if you are registered. As a result, it must be considered before registering.
Registering will make your prices more expensive and could drive away competitors. They might not want to cover the higher expenses.