Considering becoming VAT registered is one of the deliberations many new companies grapple with in the start-up phase. Although it is only legally required to become VAT registered when your company reaches a turnover threshold of £85,000, there are benefits of voluntary VAT registration. 

Ultimately, it could save money as the VAT on items purchased becomes reclaimable through HMRC, and it adds another layer of professionalism that could stand you in good stead with prospective customers and investors. This post will break down the benefits of being VAT-registered for those considering taking this route.

What is VAT?

VAT stands for value-added tax which is currently 20% in the United Kingdom. It’s an additional charge placed on goods payable to the HMRC. VAT aims to tax only the value added by a business at each stage of production, ensuring that tax is paid on the incremental value created by each business in the supply chain. VAT-registered companies can therefore claim the tax back from the HMRC at the end of each tax year. 

What are the benefits of being VAT-registered?

Being VAT-registered has several other benefits aside from being able to claim it back at the end of the financial year, which can save companies money. It’s also appealing for other companies that are purchasing goods from companies that are VAT-registered. Let’s take a closer look at all the other benefits of being VAT-registered. 

Adds Business Credibility

Being VAT registered in the UK adds business credibility by signalling that a company is legitimate and trustworthy. This registration demonstrates that a business is operating within the legal framework and is recognized by HMRC. VAT registration can enhance credibility in dealings with larger corporations, as they may prefer to work with VAT-registered companies. 

Additionally, displaying VAT registration on invoices can give a business a more professional image, which is essential for attracting customers and partners. 

Reduces Costs On Goods

Being VAT registered in the UK can help reduce company costs through the ability to reclaim VAT on business expenses. When a company is VAT registered, it can claim back the VAT it has paid on purchases related to its business activities. This means that the VAT paid on goods and services bought for the business can be recovered, reducing the overall cost to the company. By reclaiming VAT on expenses, businesses can effectively lower their operational costs and improve cash flow and financial stability. 

Reclaimable VAT Through HMRC

By being registered for VAT, the company can claim back the VAT it has paid on these business expenses. This process involves reporting the amount of VAT paid during a specific period to HMRC, which then calculates the refund or bill based on the VAT paid and collected by the business. This cash injection can be useful for companies who want to make purchases of goods like stationary or other company assets. 

Provides a Competitive Edge 

Provides a Competitive Edge 

Displaying a VAT number on invoices and marketing materials signals to clients that the business is serious and compliant, setting it apart from unregistered competitors. Moreover, VAT registration allows businesses to trade with other VAT-registered firms, broadening supplier options and facilitating smoother transactions. This credibility boost and ability to engage with a wider network of suppliers can contribute to a competitive advantage in the marketplace. 

Helps Get Started in Asset Purchasing

When a company is VAT registered, it can claim back the VAT it has paid on business expenses, including assets like equipment, inventory, and other purchases. This ability to recover VAT on asset acquisitions reduces the overall cost of these investments, improving the company’s financial position and cash flow

By reclaiming VAT on asset purchases, VAT-registered companies can effectively lower the total cost of acquiring assets, making such investments more financially viable. This is especially helpful for start-up companies looking to acquire equipment for research and development (R&D), or who need to improve the efficiency of business operations. 

Creates A Good Impression for Investors

When a company decides against registering for VAT, it effectively declares that its turnover is less than £85,000. For some investors, this may be a red flag, even if the overall business model is sound. Displaying a VAT number on invoices and marketing materials demonstrates compliance with tax regulations and adds credibility to the business. This impression of legitimacy can be crucial in attracting investors who seek to work with reputable and compliant companies.

You Get a VAT Number

Aside from the benefits associated with displaying your VAT number on financial documentation,  having a VAT number makes it easier for companies to sell and export products or services to customers in the EU and other countries. It demonstrates VAT compliance, simplifies international trade, and opens up opportunities for global expansion. Of course, it also adds professionalism and credibility to companies, making them more appealing to do business with. 

Helps Maintain Up-To-Date Records

Being VAT registered can help with maintaining up-to-date records by providing better information for running a business. VAT registration necessitates accurate record-keeping to track VAT on sales and purchases, ensuring compliance with tax regulations. This process helps in managing finances effectively and enables businesses to claim VAT on certain items purchased before the date of VAT registration.

When should you register for VAT?

If your business earns over £85,000 within a year, you must register for VAT by the next month to comply with the law. Keeping detailed records is crucial to ensure compliance and prevent surpassing the threshold unknowingly, as it is based on turnover, not profit. Conversely, if your business earns less than £85,000 annually, you can choose whether or not to register for VAT. 

However, given the aforementioned benefits of being VAT-registered, voluntary VAT registration may be the right way forward for your business, especially if you’re just starting out. 

In Summary

If you’re considering becoming VAT-registered, you can seek the help of professionals to guide you through the process. At Braant Accountants, our specialists can aid anyone who needs help or advice on registering for VAT. There are several benefits associated with becoming VAT registered, and it may be a financially wise decision for your business, depending on the nature of operations. To learn more about VAT registration, get in touch with Braant Accountants today. 

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