Do I Need to Be VAT Registered in the UK?
The new terms of taxation in the UK have caused controversy lately. Now, every company that wants to import its products and services into this country and whose turnover exceeds $120,000 per year needs to be VAT registered. But even if your annual turnover does not exceed this threshold, you still have the right to register as a taxpayer. What are its benefits and drawbacks for you? Let’s find it out in this article.
Benefits of VAT Registration
Yes, large companies can’t be choosers: if they are going to continue selling their goods to the UK, they have to register and pay VAT. However, if your company is relatively small, you have a choice. If you registered and fulfill all the requirements, you can discover many advantages in this.
- One of the benefits of VAT registering is that it will raise your standing in the eyes of others. It is not only about your consumers but also about your partners and those who are planning to cooperate with you. Large companies often refuse to cooperate with small ones. However, if you have your own VAT number, it can impress them because only large businesses get it. Therefore, you can consider it as a kind of marketing ploy.
- When you purchase goods and services from other businesses, you have a chance to get back the VAT you paid on their products. This is the so-called input tax.
- You can also levy tax on the products you sell yourself. This is the so-called output tax.
- Finally, voluntary VAT registration allows you to reclaim any previous VAT you paid. That is, you can get back taxes on your commercial purchases for up to 4 years (for goods) or 6 months (for services).
Drawbacks of VAT Registration
Like everything in this world, VAT registration in the UK has a reverse of the coin. Now let’s move on to this aspect.
- Voluntary registration can result in great paperwork. First, you need to monitor and document your VAT invoices. Second, you have to submit returns to HMRC on an ongoing basis.
- If the taxes on the goods or services you sell (output tax) are higher than the taxes on the goods or services you purchase (input tax), you will need to pay this difference to HMRC.
- If you tax the goods you sell, their prices go up. Thus, you can unwittingly lose some customers and clients who are not VAT registered because they will not be able to reclaim these expenses in the future.
Don’t be hasty. Weigh all the pros and cons, and if you think that registration can be of benefit to you, take this chance. Otherwise, continue to run your business as before.
On What Products You Can Reclaim VAT
If you passed the VAT registration, then, no matter what the annual turnover your company has, you can reclaim the VAT on the products purchased for your business. You can also reclaim this tax on those products and services that you purchased before registration.
These goods and services include the Internet, phone calls, equipment such as tablets or laptops. If you use any private house for your business, you can refund taxes on utility bills at that facility.
Remember that VAT registration is not for everyone. You need to consider how many products you purchase and how many you sell, know well your customers and clients as well as the industry in which you work. Evaluate all the conditions and make the right choice.
