Should I Register for VAT?
Are you considering registering for VAT? We give you the pros and cons of doing so. With our help, you can decide whether or not to pay VAT over the internet and get valuable information to ask your accountant.
You should always consult your accountant with any tax-related decisions before taking any action or making a decision on where to spend money. Your request for advice may be as simple as looking into the VAT registration fee, or it could be something more complicated like changing your company structure. There are a lot of factors that go into deciding whether or not to register for VAT, so let us help by providing information on what it is and how it works in the UK context.
What is VAT?
VAT stands for Value Added Tax. It's a tax that is placed on consumable goods in the UK. It is also charged on services, but we'll get to that in more detail later. When an individual or company buys goods or services in the UK, they pay VAT to the seller and the seller pays it to their government. First of all, let's establish what goods and services are taxed under this system. Basically, anything that you can eat or drink is liable for VAT. This includes supermarket food items, drinks, sweets and so forth. Services are also subject to this tax but there are exemptions for certain types of businesses such as financial institutions, healthcare providers and charities among others.
Pros and cons of registering for VAT
There are two main reasons why you may want to register for VAT. The first is because you're a profit-making company, which means that you must pay the tax on your sales. The second reason is because you want to open a business account in the UK so that you can get this service – but only if it can be done without paying VAT. We'll look at these two reasons in more detail below.
If you're a business, you'll have to pay VAT on any sales that you make. However, if you register for VAT, you get the right to reclaim the tax that you've paid on your purchases and then offset it against your payments (because unless it's essential or part of a larger product that is subject to VAT – such as a car or some other item where the invoice amount is greater than the value of the good – all businesses must pay VAT). This is what makes registered businesses competitive against non-registered companies. It's also good news for your customers since they can get a discount because of this tax. In addition, you can also claim back VAT on your purchases if you're importing goods into the UK. Once again, this is something that only registered businesses can do.
If you want to open a business account in the UK, you must pay VAT on all invoices that you pay. That's right – all invoices regardless of whether or not they're subject to VAT. If you don't pay the tax in time and submit a VAT return, your company can be charged with an offence and it will be fined as well as face a number of other sanctions.
On the other hand, the advantages of registering for VAT is that you get a business number. This is an identifier that you need to get started in the UK and it will allow you to open a bank account, make purchases and interact with government agencies. There are also a lot of good reasons why you should register for VAT if your company has any sales. For example, if you have to issue invoices for your goods or services but don't register for VAT, then you'll be charging your customers 20% more than necessary.
The second reason or main advantage of paying VAT over the internet is that it reduces red tape which makes financial management easier to handle in the long run. If you're buying and selling goods or services in the UK, you must pay VAT. Therefore, it's a good idea to register for VAT even if you're a non-profit organisation.
I hope that this helps... If there's any additional information that you need and I didn't answer it in this article please let me know and I'll do my best to help.
Regards,
Laura Scott
VAT Consultant / Accountant
www.vatadviser.co.uk
© Copyright Giselle Kennedy 2014-2015: Intercare Accounting Ltd., www.intercareaccountingltd.com . All rights reserved.
Author retains copyright and all other intellectual property rights in this publication. No part of this publication may be redistributed, sold or modified without the prior written consent of the author.
Disclaimer: The information provided herein is for general guidance only and does not constitute professional advice. Please make sure to seek advice from a suitably qualified professional before acting on any information provided by Intercare Accounting Ltd. in this article.
VAT Consultant London
This Page Will Continue To Be Developed As I Get New Information On The Subject Of VAT Registration. I Added The Article That I Found Most Helpful From Business Week On August 4, 2012. If You Have Any Questions, Please Feel Free To Contact Me Directly At intercareaccounting@gmail.com or Visit My VAT Consulting Blog.
How to Pay Less VAT On Your Purchases: Step 1
How to Pay Less VAT On Your Purchases: Step 2
How to Pay Less VAT On Your Purchases: Step 3
Once you've registered for VAT, you can create a tax code online. Businesses register for the tax via their business registration number, which is given to them by the government. This enables them to claim input tax credits when they aren't charged VAT on revenue that is paid out. It also lets you import taxable goods into the UK for free.
The second reason why you may want to opt for VAT registration is that it lets you get a business bank account in the UK. This is a useful service, although it's mainly aimed at self-employed people and other people who run their own businesses. To open a business account in England requires a small amount of paperwork but it's not hard to apply, especially if you can get your company setup with an existing bank account.
Businesses have to pay VAT when they make purchases; they can't deduct input tax credits from fees (like credit card fees or banking charges) or before they receive money from customers.
Conclusion
The tax system in the UK can be confusing, but it's important for businesses who want to operate in the country. VAT is one of the most important taxes because it affects you as a business and your customers. If you're not registered for VAT, then every time you make a sale, your customers will have to pay an extra 20% on their purchase. This means that it's worthwhile registering for VAT in order to keep your company competitive and on top of its game!
If you have any questions please contact me directly at intercareaccounting@gmail.com or visit my VAT Consulting Blog.