This week I was asked
“My turnover is below the VAT Registration Threshold so I do not have to register, I have heard that I can voluntary register and I was wondering what the benefits (if they are any) are of doing this?”
Value Added Tax (VAT) is the sales tax levied against goods and services within the UK.
Businesses with a turnover in excess of the VAT Registration Threshold (currently £85,000 2017/18) are required by law to register for VAT with HM Revenue & Customs. Businesses that fail to do so within 30 days of reaching this threshold are liable for a penalty for failure to notify.
Once a business is VAT registered it must charge VAT on goods and services sold to customers, however it can also reclaim VAT charged on goods and services purchased for the business from other businesses and suppliers.
What Is Voluntary VAT Registration?
Although VAT registration is required by businesses with a taxable turnover above the threshold it is still possible to voluntarily register your business for VAT. And there are several business benefits to doing so.
What Are The Benefits of Voluntary VAT Registration?
There are a few benefits of voluntary VAT registration which can make it appealing for small businesses.
- Avoiding Financial Penalties– You need to keep a careful eye on your turnover figure otherwise you might not notice when it goes over the VAT registration threshold. Failure to properly register could result in a nasty fine for your business.
- Business Profile – when first starting it can be challenging to compete against bigger companies. Most people are aware of the VAT registration threshold, voluntarily registering your business for VAT might give the impression that your business is bigger and more successful than it actually is.
- Business Dealings –suppliers and organisations may be unwilling to do business with companies and SMEs that aren’t VAT registered.
- VAT Refunds – another advantage of voluntary VAT registration is the ability to claim VAT on goods and services purchased for your business. If you are selling one sort of VAT Rated product (e.g. zero rated) while buying another (e.g. standard rated) you may actually receive money back from the HMRC in VAT refunds!
- Reclaiming Past VAT paid – voluntary VAT registration allows you to reclaim VAT from the last 4 years. If you’ve been in business for a while, but not yet reached the threshold you can still reclaim VAT as long as you have kept the proper VAT records and invoices.
Being VAT Registered
Once voluntarily registered for VAT you need keep proper records, raise VAT invoices and submit a VAT return every quarter. This might be seen as one of the disadvantages of voluntary VAT registration as there are more rules to follow and it can increase your accountancy costs.
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