Advantages of Registering for VAT
Advantages of Registering for VAT
May 28, 2019
Many businesses in the UK choose to pay VAT even when they don’t have to. The turnover you need to have in order to pay mandatory VAT is set at £85.000 per year. Those who earn less can choose to pay into the system even they don’t need to.
This is done due to the many benefits that come from being a part of VAT. The most common of these is in the fact that the VAT you’ve paid for the essential purchases could be refunded to your business at the end of the year.
The size of the business
There is the time when the size of your business is something to brag about (and that’s when the company is growing), and there are times to conceal it as much as you can (which is usually the case when you’re just getting started. One of the ways of concealing it is to register for paying VAT.
When you register your business for VAT, no one can tell if your company has a turnover higher than £85.000 or you’ve decided to apply for VAT voluntary. This gives you a chance to mingle with bigger businesses than your own.
The items that are essential for running your business and that you pay VAT on are subject to refunds by HMRC. The whole amount you’ve paid for VAT is refunded to your company at the end of the year. The amounts you pay depend on what product or service you’ve purchased.
The key to getting this refund is to be sure when you can get it and to keep detailed records of your expenses and investments especially when the company is still young and could use every refund and additional assets it could get its hands on.
Working with suppliers
One of the key business relationships a retail business needs to cultivate is the relationship with their supplier. Sometimes the key to this relationship is paying VAT. Some suppliers don’t want to work with companies that aren’t in a VAT system. This may not seem reasonable in all cases, but it’s their right to do so.
Not being in the VAT system, therefore limits your ability to get into a business relationship with some suppliers. It’s not wise to limit yourself in terms of business opportunities when your company is just getting started.
A business that pays VAT is obligated to send a VAT return every 3 months. It could also be done monthly, but most decide to do it this way since it’s less work. The return needs to be sent digitally starting from this year. It can be done by the owner or by an accountant.
This is an additional expense for a small business because you need to hire a professional to do the job for you or you’ll need to take the time to learn to do it yourself, and that can be a problem for a small business owner who’s already busy.
You need to pay VAT, but in effect, it’s paid by the customer on their end. That means that your prices will need to be raised to cover the cost of VAT in regards to the rate that applies to the goods and service you’re selling.
Customers are usually used to paying VAT, and this isn’t something that will cause that much problems, but it’s still not a good idea to drive customers away if you’re a small company that still needs to find its place in the market.
If your company sells to other businesses, their payments are made via invoices. Invoices will now have to include separate documents relating to how much VAT was charged and what your rates are as well as what refunds and reliefs you have the right to. That’s something that’s also handled digitally, but that requires extra work.
Again, there are two ways to handle this. One is to take the time to handle accounting on your own, and the other is to start paying for accounting services that will also deal with invoices which is another additional expense.
There are numerous advantages of applying to pay VAT. This is a mandatory process for those with a turnover higher than £85.000 a year, but it’s an option for others with a smaller turnover to pay VAT as well since there are many benefits to this course of action.
This makes your business seem larger than it is and you get the chance to get the refund on the purchases you’ve made related to the necessary business items. Many retail suppliers prefer to only work with businesses that are registered for VAT since they find it more secure. At the same time, this presents additional expenses for a small company.