The Pro’s and Con’s of being VAT registered

Annabel Barnes • 22 March 2023

The Pro’s and Con’s of being VAT registered

It’s important that business owners keep a close eye on their turnover. Not only is it really important to know how much money your business is generating, it’s also important that you register for VAT as soon as you know you’re going to hit the VAT threshold of £85,000.

Your VATable turnover is any money which comes into your business which is not exempt from VAT. You can also decide to voluntarily register for VAT even if you don’t expect to hit the VAT threshold. Many business owners don’t understand why you would choose to do this, so we’re here to clear that up.

Reasons to register for VAT

When you become VAT registered it means you must start charging VAT on all of your sales, unless of course the goods or services are exempt or Zero rated. In turn this means anything which you purchase that you pay VAT on, you can claim back the VAT. If you make a lot of purchases which include VAT it may work out better for you to register for VAT.

If you chose to register VAT before you hit the threshold then you are entitled to claim back the VAT on all purchases you have made in the last 4 years. You just need to have evidence of the purchase to be able to do this.

Businesses who are registered for VAT feel that they portray more credibility to their clients. It shows how successful your business is and that you are professional and committed. Some businesses sometimes rule out working with non-VAT registered suppliers as they assume they are too small to meet their obligations.

Reasons to avoid registering for VAT

Before you consider voluntarily registering for VAT it’s important to consider how much VAT you pay as a business. If the amount of VAT you pay out would be less than the amount you would be charging then it wouldn’t be beneficial to your business.

Being VAT registered creates more admin for you, unless of course you have a bookkeeper who can look after all of that for you. So, unless it’s of great benefit to your business, it may not be worth registering, unless you have to of course!

Every business is different and there will be various different reasons why one would choose to voluntarily register for VAT. It’s important to weigh up all possibilities before choosing to register. You also have to consider that any VAT you charge must be put to one side in order to pay this to HMRC.

If you need some advice on what would best suit your business then please get in touch.

Get in touch

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