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.