VAT – The Disadvantages To Registering

VAT – The Disadvantages To Registering

Many large companies that are enjoying a highly profitable enterprise will most likely register for VAT at one point or another, which will mean they’re charging their customers a slightly increased amount in return for continued growth, the opportunity to expand and grow, as well as more money coming in. However, there are disadvantages to registering for VAT, despite what many people would initially think. So, what are these drawbacks?

It could affect your business

First and foremost, the biggest problem with registering for VAT is the detrimental effect it can have on your customer base. A raise in prices may lead to unhappy customers. For example, if you were a small premises operating in town as a general store selling food and drink, and your prices raised to match supermarket prices, it may drive customers away as they’re paying the same thing elsewhere for potentially a larger selection, if the fact you were a smaller local business selling goods slightly cheaper was the main appeal of your shop. As well as this, you have to charge VAT on each sale which is appropriate to the price, so in some instances, the pricing of certain items which are more expensive can rise further, and it’s entirely possible that your customers can find a better deal to purchase the goods elsewhere.

You’ll have more paperwork

With the addition of VAT comes the addition of paperwork in larger volumes to accommodate the added responsibility and processes. Administration of VAT involves a quarterly or monthly VAT return to be filled out and sent to HMRC with details how much VAT has been taken in, and as well at this, the documents have to be stored and maintained for record keeping. As well as this, you as the vendor of goods will be required to raise a VAT invoice on every sale that is made, and these will all need to be kept and stored safely in case a situation arises where proof that VAT is being charged is required. Another interesting point is that while you can opt out of VAT if you decide that it’s become a detriment to your business and you no longer wish to charge it, you’ll be unable to if your annual sales exceed a certain value.

So, looking at these disadvantages, does that make VAT something to not register for? It’s a very circumstantial thing, with commercial giants like supermarket chains benefitting from the registration of VAT, and smaller, more local businesses failing to profit to the same levels. It’s a decision that is at the discretion of the owner of the firm because there are some distinct disadvantages if the registration is not done tactfully. The biggest concern for aspiring companies will be losing a valuable customer base in the event of rising prices when the lowered prices and the fact it was supporting a local business was part of what gave the shop it’s appeal, but with rising VAT prices it could be problematic.

VAT – The Facts

VAT – The Facts

For many small businesses, the challenge of running and profiting from an enterprise is a difficult one, and many struggle with this already imposing task without the introduction of complications such as VAT. But for those who are interested, there are a few questions. What is VAT, and do I, as a businessperson, apply for it?

What precisely is VAT?

‘VAT’ is an acronym for Value Added Tax, which is a consumption tax that was created in the UK in the year of 1973, and exists as a government revenue, and provides the third largest source of income in the country. Since 2011, the standard rate for VAT has been 20% of the price of the goods or service bought. It has been called an ‘indirect tax’, because the amount of money charged that is actual VAT is paid to the government by the vendor of the goods and services, as opposed to the customer purchasing the commodity.

So do I need to apply for VAT?

For you to reach a point where you’ll need to apply for VAT, there are certain criteria that must first be met. Firstly, it’s important to consider that if the annual earnings of your business are more than £85,000, then you are legally required to charge VAT and must apply for it. You are allowed to register for VAT at any stage in time, but it’s worth considering that a sudden increase in prices may well upset and dissuade customers, who may feel inclined to seek out other vendors.

How do I register?

Registering for VAT is a process that, like many other legal requirements, involves filling out paperwork. The form required to apply for VAT can be found directly on the government website and requires basic information such as the name of the business applying, contact information, and other various details about the business itself. Once the application has been processed and approve, you’ll be sent a pack which contains a certificate confirming you have applied for VAT, as well as the unique number which is used with all processes pertaining to your VAT from that point on. Before you sign up for VAT, see the advantages and disadvantages of registration.

How does VAT affect my business?

Once you’ve been approved for VAT and have the certificate to prove it, you’ll then have to, by law, charge your customers new rates which incorporate the VAT. You can claim back certain parts of the VAT as part of your expenses, but it’s dependant on circumstances and other factors.

Overall, VAT may seem complicated, but it can be easy to understand and a valuable addition to any business. Being able to reclaim certain amounts of money as part of VAT will be welcome to many organisations. Application for VAT isn’t difficult, the forms are easily available and not crammed full of legal jargon. If you’re a growing business with a stable customer base, and you’re looking to expand past the £85,000 mark and become a big player in your industry, it’s worth knowing the facts.