Pros and Cons of VAT Registering a Small Business

If you run a small business, Value Added Tax (VAT) is something that you may or may not need to pay. Even if you do not have to register for VAT, you may decide that it is the right option for your business. Here we look at the advantages and disadvantages of VAT registration for small businesses.

Quick VAT Overview

VAT is a tax added onto goods or services. You don't pay the tax yourself, and instead the consumer pays the tax. You essentially collect the tax and pass it onto HMRC in the form of your VAT returns.

The standard rate is 20%, but it is not applied to all goods and services, and different rates apply to some goods. Some things are exempt, including some food and drink, and some things have a reduced rate of 5%.

When it comes to VAT planning, you only have to register for VAT when your turnover from selling your goods or services is more than the VAT threshold. At the time of writing, the threshold is £85,000

If you have a turnover of more than this over a period of 12 months, you don't have a choice and you will have to register.

But what if your turnover is lower? You may want to register anyway, and you can. But is this in your best interests?

Advantages of Being VAT Registered

When it comes to VAT advice for small businesses, there are a few benefits of being VAT registered.

For a start, you may be able to attract better clients. They may treat you more seriously if you are VAT registered because it shows that you run a serious business and suggests you are earning over a certain amount, even if you're not.

Additionally, when you pay for other goods and services, you can reclaim the VAT that you are charged. If the tax you pay for goods and services is more than the tax you collect from your customers, you can collect the difference from HMRC when you submit your VAT returns, so this is something to consider with your VAT planning.

Disadvantages of Being VAT Registered

When your business is VAT registered, it is yet another task to do and there is more paperwork involved. It may be confusing if you are unsure of the requirements, and you may need some assistance with VAT registration.

In addition, you will have to charge your customers more, and they may be able to find a cheaper alternative if one of your competitors does not charge VAT. This could affect you more if your customers are the general public rather than VAT-registered businesses that can claim back their VAT.

Seek Professional Help with VAT

VAT is relatively simple to arrange, but there are often questions about whether you should register or not. At Keith Graham Chartered Accountants we provide VAT assistance to businesses across Hampshire and Surrey, and we can even help with issues like group VAT registration.

If you're still weighing up the pros and cons of registering your business for VAT or would like to know more about any aspect of VAT registration, get in touch with a member of our Aldershot based team and find out which is the best option for your business.