4 Min. Read

4 Benefits of Being VAT Registered

March 15, 2024

Even though the value-added tax (VAT) has a compulsory limit, some companies choose to register before they’ve reached it. There are a number of benefits to voluntary VAT registration. Even if your business hasn’t reached the VAT registration threshold, you may want to consider registering. We’re going to layout the 4 benefits of voluntary VAT registration for you below!

Here’s What We’ll Cover:

What Is VAT?

What Are the Benefits of Being VAT Registered?

Are There Any Disadvantages?

Key Takeaways

What Is VAT?

VAT, or value-added tax, is tax collected on behalf of HM Revenue and Customs (HMRC). It is a tax that is levied against goods and services. The standard VAT rate is 20%. There is a reduced rate at 5%, and a zero rate at 0%. The taxes collected on most items will fall under the standard rate, while certain companies like energy services will be at a reduced rate.

Now, you may be wondering why you’d want to register to pay for a tax when you don’t have to. The truth is that many businesses would benefit from voluntary registration for VAT.

What Are the Benefits of Being VAT Registered?

VAT-registered companies are able to reap quite a few benefits. While they may fall under the threshold, they still get to take part in the gains associated with registration.

1. Your Business Image Improves

This is one of the largest benefits that VAT-registered businesses can reap. A VAT-registered business appears bigger. Even if you don’t have the need for compulsory registration, it still reflects the same. People are aware that businesses that undergo compulsory VAT registration are bringing in more revenue. This simple registration process can make even the smallest limited company appear to be a large corporation. The VAT threshold is at least £85,000, and being VAT-registered will signal to some that your business brings in that much.

Additionally, it can increase business overall. Some business owners will prefer to work only with registered businesses. They’ll turn away any non-VAT registered businesses in search of other clients. Being VAT-registered tells other businesses that you can send valid VAT invoices. This is an important part of business to business operations. Larger businesses know that VAT-registered businesses can send these relevant documents without issue.

2. You May Receive VAT Refunds

When you think of taxes, you tend to think of paying the government money. Well, when you volunteer to register for VAT, the tables may turn. One of the benefits of VAT registration is the ability to claim VAT refunds. When your business purchases goods, you can reclaim VAT on them. Your business can also reclaim VAT on services paid for throughout the year. If your business has had large expenses throughout the year, the amount you can reclaim may be large. When you submit your VAT return after these charges you may see a substantial refund!

3. You Can Claim Past VAT

Following the VAT registration process, your business may be able to claim VAT from the last 4 years. To reclaim this, the items must still be in use. Depending on what kind of business you’re running, this may result in a substantial return. To be able to claim this, though, your business will have needed to exist for those 4 years. You’ll also need to be able to provide VAT invoices and records from that period of time.

4. You Are Given a VAT Registration Number

While this seems minuscule, it’s actually a big deal. It relates to the first benefit of improved image. However, it extends beyond your business’s image. If you’re running a small business, a VAT number can do wonders for your image. It shows that you’re a contributing business owner. It gives you credibility and builds trust with potential clients. A VAT registration number can change your life.

Are There Any Disadvantages?

There are a few possible disadvantages associated with VAT registration. It really depends on your business needs, so take the following reasons into consideration:

Being VAT-registered may lead to an increase in admin and bookkeeping costs. As such, it needs to be thought about before registering.
Being VAT-registered will increase your prices, and may drive away businesses that aren’t VAT-registered. They may not want to pay the increased costs.

Key Takeaways

Your business may not meet the requirements for compulsory VAT registration right now, but you can still register. Voluntary VAT registration leads to a number of benefits. If you intend on growing your business, VAT registration may help you accomplish that faster! If you’re looking for more information on VAT before making your decision, be sure to visit our resource hub! We have articles about VAT for businesses. Check them out!