The benefits of VAT registration

If you’re a new company, you might not have VAT registered yet. Sometimes, it’s unnecessary, but it is something you must consider, particularly if you are certain your turnover of taxable items is due to exceed the current threshold. It may seem like a difficult process, but there are some hidden advantages to being a VAT registered company.

Experlu an online platform for hiring accountants & internal auditors are sharing the benefits of VAT registration and why it’s an essential step for new businesses.

Table of contents

The benefits of VAT registration

• What is VAT?
• What is the VAT threshold in the UK? (2024–25)
• What advantages does VAT registration offer?

Final thoughts

What is VAT?

VAT is a tax imposed on most products and services in the UK. VAT is a consumption tax that is charged at every step of the supply chain, from production to final sale to the customer.

Companies registered for VAT must charge VAT on the products and services they offer and pay the VAT they have charged to HMRC. Businesses can calculate their VAT amount by using a UK VAT Checker and calculator. They can also claim back any value-added tax (VAT) they spent on their company’s expenses.

What is the VAT threshold in the UK? (2024–25)

If your taxable turnover surpasses the VAT threshold, you must register for VAT.

• Before 1st April 2024, this threshold is £85,000.
• From 1st April 2024, this threshold will be £90,000.

Taxable turnover is all revenue incurred by sales that are not VAT exempt. Even turnover on which the VAT rate is zero is identified as taxable revenue.

Businesses that do not exceed this limit must not charge VAT on selling their products or services. Additionally, they are exempt from registering with HM Revenue & Customs (HMRC).

This turnover limit is calculated over a rolling 12-month period instead of a fixed period like the tax year. It could be any time frame of 12 whole months, for instance, from the start of June to the end of May.

Unregistered companies whose turnover is close to the registration limit should monitor this closely. There are tight deadlines for submitting the registration and imposing VAT once you have passed the revenue threshold.

What advantages does VAT registration offer?

You can receive VAT refunds.

When you think of taxation, you are likely to think of paying the government money. Well, when you volunteer to file for VAT, the odds may turn. One of the benefits of VAT registration is the capacity to file for VAT refunds. When your business purchases products, you can reclaim the value-added tax on them. Your company can also reclaim the value-added tax on services paid for throughout the year.

If your company has had significant expenditures throughout the year, the amount you can reclaim may be large. You could receive an extensive refund when you fill out your VAT return after these charges!

You are given a VAT registration number

While this seems tiny, it’s very significant. It relates to the benefit of enhanced business image. For a small firm, having a VAT number can greatly improve its reputation. It demonstrates its role as an active business owner. It increases its credibility and fosters confidence with possible customers. A VAT registration number can transform the business.

You can avoid financial penalties from HMRC

If your annual revenue is close to the registered VAT threshold, you may fail to notice if you violate it. HMRC may impose financial penalties if this occurs and you fail to register for Value Added Tax within 30 days after surpassing the VAT threshold. Voluntary VAT registration will eliminate this risk while offering you peace of mind.

Facilitates international trade facilitation

VAT registration may be a necessity for companies engaged in international trade. It allows simplified transactions within the EU and different jurisdictions that impose VAT, as VAT-registered businesses can often benefit from streamlined customs procedures and different trade facilitations.

Final thoughts

Lastly, VAT registration provides numerous advantages, like the ones mentioned above. To make a well-informed choice about VAT registration for your business, evaluate your specific circumstances, customer base, and sector. Speaking with professional Online accountancy firm can help you properly balance the benefits and drawbacks and ensure that VAT works in your favor.