Do you know what VAT is? Yes, it’s Value Added Tax.
In this blog post, we will explain what Value-Added Tax is and at what point your business has to become VAT-registered.
We’ll also cover the perks of voluntarily registering your business before it hits the revenue threshold.
What is VAT?
Value-Added Tax is a consumption tax that is levied on goods and services at every stage of the supply chain, from production to final purchase by the end consumer.
The tax is calculated as a percentage of the price of the good or service, and it is collected by businesses and paid over to the government.
When Do You Have To Become VAT-Registered?
You are required to register for VAT when your taxable turnover (the total value of everything you sell that is subject to VAT) exceeds the registration threshold, which is currently £85,000.
However, you can voluntarily register for VAT even if your turnover is below the threshold.
How To Register For VAT?
If you are required to register for VAT, you must do so within 30 days of hitting the threshold. You can register online on the HMRC website.
If you voluntarily decide to register for VAT, you can do so at any time.
Benefits Of Voluntarily Registering For VAT
There are a few reasons why you might want to register for VAT even if your turnover is below the registration threshold.
1. Reclaim Past VAT Charges
If you register voluntarily, you can reclaim the VAT that you have paid on purchases made for your business. This could be a significant amount of money, depending on the size of your business. You may even save money on your income tax by keeping and submitting accurate VAT records and invoices.
2. Better Cash Flow
If you are registered for VAT, you can charge VAT on the goods and services you provide. This means that you effectively collect the VAT on behalf of HMRC and then pay it over to the government. This can be a big help with cash flow because it means you have the VAT money in your account before you have to pay it over to HMRC.
3. Boost Credibility
In addition, registering for VAT can give your business a boost in credibility, as it shows that you are a serious and professional operation. It gives the impression that you are a larger and more established business than you might actually be.
Therefore, VAT registration helps your customers feel more confident in your business, and gives you a bit of an edge if you’re operating in a highly competitive industry.
4. Attract Customers
Some customers, particularly large businesses, will only work with suppliers who are VAT-registered. This is because they can reclaim the VAT that they are charged, so it’s effectively a discount on the goods or services they’re purchasing.
So if you want to expand your customer base, it might be worth registering for VAT.
Conclusion
VAT registration is something that you will need to consider as your business grows. It’s important to be aware of the requirements and the benefits before making a decision.
If you do decide to register for VAT, make sure that you are prepared to comply with all the requirements involved in keeping accurate records and filing VAT returns.
If you are not sure whether or not your business should be registered for VAT, speak to an accountant or tax advisor.
Axies Accountants will be able to help you make the best decision for your business.
To know more, get in touch with us today.
