Is it a good idea to choose voluntary VAT registration?
In case you run a business and the total value of the taxable products, supplies, and services provided in the United Kingdom are over £85,000 for the past year (12 months) or in case you believe that you will pass this amount in the next month, then VAT registration is mandatory. You will have to use HM Revenue and Customs to register for VAT. Experts call this mandatory or compulsory VAT registration as opposed to voluntary VAT registration.
What makes voluntary VAT registration a smart move?
The logical conclusion is that in case you run a business that doesn’t create taxable services and goods that go above the limit that you should not use VAT registration. But, there is more than one reason why voluntary VAT registration is a smart move. We will use this article to discuss the benefits of this registration and some downsides too.
Benefits
One of the greatest benefits of voluntary VAT registration is that when you are expecting a payment from a business partner who happens to be VAT registered, you will get the chance to get back VAT. This is possible for every or some of the purchases you’ve made. It all depends on the type of products/services you were using for your business. The good news is that your clients will remain unaffected. It doesn’t matter whether you are Vat registered or not, they can still get their VAT back.
Another indirect benefit of voluntary VAT registration is that your business partners may feel more secure dealing with you. Namely, some of them believe that this means that you have a good turnover without knowing that you did this voluntarily. Such registration gives business greater credibility and a better reputation.
In case you own and run a business that involves purchasing supplies with no rating for VAT purposes, then it might be a good idea to register for VAT despite your low turnover. This move will give you a chance to get a repayment claim on a monthly basis. In other words, it will improve your cash flow.
A few other things you should know about voluntary VAT registration
As we said before, there are some potential downsides of this registration. For instance, you will have to submit annual VAT returns and include this in your books. This is not a problem for those who already have a well-designed and well-developed bookkeeping system.
In case you register for VAT on a voluntary basis and the customer base you have to represent the general public, you must add 17.5% VAT to the price. This is why you should think twice whether you should use this option.
Voluntary VAT registration is a serious business decision. This is the reason why you should approach this issue in a serious way. The best idea is to consult financial experts focused on this field. They will explain all the advantages and possible downsides of a business move like this.
