Maximize your business potential with VAT registration! Learn the top 10 reasons why registering for VAT in the UK is wise. Do not overlook the opportunities that VAT registration can bring to your business. Read on to find out more.
Top 10 Reasons Why You Need VAT Registration for Your Business
As an entrepreneur, you might have heard about VAT, Value Added Tax. VAT is a consumption tax that is added to the price of goods and services at each stage of production and distribution.
In the UK, depending on the scale of the business, you are either required to register for VAT or opt to do so voluntarily.
Now, why do you need to bother with registering for VAT? After all, it seems like just another bureaucratic hassle to deal with. But registering for VAT can benefit your business in several ways.
In this blog, we will share the top 10 reasons why you need to consider registering for VAT and why it is less overwhelming a process than it may seem. So, let’s dive in!
1. Exceeded the threshold
If your business has a turnover of over £85,000 per year, you must register for VAT.
This is on top of our list since you do not have a choice. But for the following reasons, we will talk about the benefits of opting for VAT registration, despite still needing to meet the threshold.
2. Prepare for growth
If you believe your business will grow in the future, even if you have yet to be at the threshold, you can still register voluntarily to help you avoid penalties for not registering when you should have.
In addition, registering for VAT can help you make strategic decisions about your business operations and investments and prepare for potential changes in tax regulations or business conditions.
3. Claim back VAT on operational expenses
Usually, when you purchase goods or services for your business, the price includes VAT. But if you are registered for VAT, you can claim back the VAT you have paid on these business expenses.
This can help you reduce your costs and improve your cash flow, especially if you are a small business or just starting. That is a very compelling reason for VAT registration.
4. Impression of legitimacy and large-scale
Having a VAT number gives your business an air of legitimacy, which can help you attract customers and suppliers. It shows you are serious about your business and registered with HM Revenue & Customs (HMRC).
Furthermore, being VAT-registered, your business partners may perceive you as a large-scale business, even though you may not. This is because a VAT number is usually only obtained once the high turnover threshold is exceeded.
5. Competitive advantage
If your competitors are registered for VAT, it may be advantageous for you to do the same. It can make your prices more attractive to customers who can claim back the VAT and help you compete for contracts and tenders.
6. Enhance customer relationship
With the help of VAT registration, you can provide a transparent pricing structure for your customers through a VAT invoice with a clearly stated amount of VAT. You can build stronger relationships with your customers with the trust you can gain from them.
7. Build credibility with suppliers and other business partners
VAT registration can help you build relationships with suppliers and other business partners as it demonstrates that your business is serious and professional.
Most suppliers and vendors have a preference for businesses that have already registered for VAT, and they may choose to work with them instead of non-VAT registered, as it signals legitimacy and financial stability.
If you are a VAT-registered business, you may be more favoured by the vendors, and you can assure your customers and other stakeholders.
8. Recover VAT on capital assets
When you purchase a capital asset, you must also pay VAT on top of the price. However, if you are registered for VAT, you can claim back the VAT paid on capital assets, which can help reduce the overall cost of the asset.
To claim back VAT on capital assets, you must ensure that the assets are used for business purposes and that the VAT was paid on a valid VAT invoice.
You must also retain the invoice and other documentation as proof of the purchase and VAT payment.
9. Protect against fraud
Registering for Value Added Tax (VAT) can effectively protect your business against fraud and other financial risks.
VAT registration means you must maintain accurate and detailed records of all sales and purchases of your company, including the amount of VAT charged or paid, which can be invaluable in detecting and preventing fraudulent activity.
In addition, when you are VAT-registered, you can verify the VAT registration status of other partner businesses and ensure that you are only doing business with legitimate companies also registered for VAT.
10. Access to government tenders
By registering for VAT, you may access a broader range of tenders and contracts, as many government tenders require businesses to be VAT registered to be eligible to bid.
If you have plans to expand your business into the public sector, it may be more necessary for your business to obtain VAT registration.
Frequently Asked Questions
How do I register for VAT?
You can register for VAT online through HM Revenue & Customs (HMRC) or by completing a VAT registration form and submitting it to HMRC by post.
How often do I need to submit VAT returns?
If you are VAT-registered, you must submit VAT returns to HMRC regularly (usually quarterly) to report your VAT liabilities and payments.
What happens if I need to correct an entry on my VAT return?
If you make a mistake on your VAT return, correcting it as soon as possible is the best solution by submitting an amended return or contacting HMRC. You may face penalties or fines depending on the nature of the mistake.
VAT registration can bring many benefits to your business, from reducing costs to improving credibility. While it is not mandatory for all businesses, it is worth considering if you want to grow and compete in today’s business world.
If you are still determining whether to register for VAT or have any other tax-related questions, check out Sterlinx Global for personalised advice and guidance.