When you start a business, be ready to follow several necessary legal requirements, such as your VAT registration, if you are wondering what VAT is and why it is needed. Don’t worry; this article will assist you in understanding the various aspects of VAT and its benefits and disadvantages.
What is Value Added Tax (VAT)?
VAT stands for Value Added Tax. Most of the goods and services offered by VAT-registered UK firms are subject to a VAT fee. Some products and services imported from EU and non-EU nations also include VAT. VAT is added to the sale price of these goods by VAT-registered companies when they are sold to both commercial and non-commercial businesses. The VAT paid while purchasing goods or services can typically be claimed by VAT-registered businesses.
When Must You Register for VAT?
Now comes the point of registration. If your business generates more than £85,000 in revenue every year £85,000 during any 12 months, you must register for VAT by the end of the following month. You must maintain precise records to ensure that your business is operating legally and is not producing more than £85,000 without being VAT registered.
When your prior year’s taxable turnover (not your profit) surpasses £85,000, you must legally register for VAT. Even smaller enterprises may cross the £85,000 threshold and need to register for VAT because the amount is based on turnover rather than profit.
How to Apply for VAT Registration
The registration process is quite simple, you need to sign up for HMRC Online Services to register for VAT, and HMRC needs two weeks to process the application.
The notable point is that until you obtain your HMRC number, you cannot charge VAT or publish any such charges on invoices. You can change your prices to reflect the amount of VAT you will shortly be charging. Typically, online VAT returns are filed for each three-month VAT period. Within one month and seven days of the conclusion of the VAT period, they must be sent to HMRC. VAT payments are received electronically. The deadline for filing your VAT return and making VAT payments are typically the same.
You may choose a VAT scheme according to the nature of your business. Here you can have detailed information about VAT schemes.
Pros of VAT Registration
Now, you must have developed an understanding of Value Added Tax. It’s time to discover what benefits are associated with VAT registration. Some of them are listed below:
- Almost any good or service sold can be subject to VAT.
- You can get your VAT back on the majority of goods and services you buy from other businesses.
- Small VAT-registered businesses can improve their reputation by coming off as more credible, which is terrific for marketing. This will appeal to their customers and their clients, investors, suppliers, and others who would presume the company has a higher annual revenue due to the VAT registration.
- Some larger companies will feel more at ease using VAT Registered Companies – They can consider unregistered businesses too small for their requirements.
- Companies who voluntarily register for VAT can prospectively claim the VAT paid on equipment purchased up to four years before their registration date. However, you must provide HMRC with proof of this.
- If your business clients are VAT registered, they may be able to recover or claim the VAT you charge, so there is no change in the total they must pay.
- You can expect increased cash flow – Because you are charging more for goods and services, you can anticipate a more significant cash flow in your company, which is always appealing to investors.
- You can boost the attraction of your business to potential clients by including your VAT number on invoices and websites.
Cons of Being VAT Registered
There are always two sides to a story; after getting to know the pros, you may feel like having a look at the cons of being VAT registered. The following negative considerations regarding VAT registration are unnecessary if your company’s annual revenue is less than £85,000. If you opt for voluntary VAT registration, you may dismiss the option at a point if you deem the following cons to exceed significantly the pros of being VAT registered. Here are the facts:
- Any goods or services you sell with VAT may be too pricey or unreasonably overpriced for your clients and consumers because they are not VAT registered and cannot claim the VAT on purchases.
- Your company must submit a VAT return every three months and keep accurate records for a rolling 12-month period.
- You may fall for VAT fraud.
- VAT-registered businesses must uphold specific administrative responsibilities, including storing and maintaining all VAT invoices and receipts and submitting their VAT returns quarterly. For companies that are registered for VAT, this paperwork is necessary.
- If you routinely create more VAT than you are permitted to claim, you can find that you’re stuck with a significant VAT charge.
- Minor errors could prevent you from taking advantage of the advantages of having a VAT registration because the VAT process is so complicated.
After weighing the pros and cons of VAT registration, you can continue with business as usual if you still believe your small business doesn’t need to register voluntarily. Remember that you cannot charge or claim VAT on anything you sell or buy if you are not registered for VAT.
When registering for VAT, the most crucial thing to remember is to start keeping records and accounts with all necessary invoices and receipts.
If your annual turnover is more than £85,000, then you need to take the help of an expert tax accountant. Are you looking for a professional tax Accountant in Crawley make sure to have a visit and enjoy the benefits of VAT registration without having to worry about complexities.