Pros and Cons of being VAT Registered

[lucidity]

Hi there,

I was chatting to a business owner today who was suggesting that i shouldn't VAT
register. He was saying that there's no point until your turn over is over 80K.
This doesn't make sense to me. Why pay VAT needlessly ?
There's going to be some admin/paperwork hassles in keeping records and filling in forms, but 20% tax could be a lot of money.

What am i missing ? Why not get VAT registered from the very beginning and start reclaiming any VAT that i pay ?

Could someone please be good enough as to explain the pros and cons of being tax registered ?

thanks to anyone that responds

lucidity

 

[Vedran B.]

I've been doing a lot of research lately for a website I'm building for my client and I found this info very useful.


The advantages of voluntary VAT registration

The threshold for VAT registration is currently set at £81,000 for 2014-15. This may seem like a lot of income but it is important to remember that this figure refers to ‘taxable turnover’, which is the overall income generated from all sales, not simply the profit made from those sales. For this reason, many small businesses and limited companies will be legally required to register for VAT. The benefits of VAT registration, whether necessary or voluntary, are aplenty:

• VAT can be applied to the sale cost of almost all goods and services offered by a business.
• VAT paid by a business on most goods or services it purchases from other businesses can be reclaimed.
• Small businesses can give the appearance of being larger and more established, which can be very appealing to clients, lenders, investors and suppliers who will assume a business has a turnover of more than £81,000 because it is VAT registered.
• VAT-registered businesses are given a VAT number. This can be displayed on invoices, letterheads, websites and other forms of business stationery. Again, this can be appealing to other firms, many of whom may not be willing to get involved with a business that is not VAT registered and, therefore, considered to be small.
• Voluntary registration can be backdated by up to four years if sufficient evidence can be supplied to HMRC.

The disadvantages of voluntary VAT registration

• VAT could hamper the appeal of goods and services to customers who are not VAT registered, particularly if the final cost of the sale is deemed unreasonable or over-priced.
• Businesses could end up with a large VAT bill from HMRC if they generate more VAT from goods and services sold than the VAT paid on goods and services bought from other businesses.
• Extra paperwork and administration is an unavoidable consequence of VAT registration – businesses will require keeping all VAT invoices and receipts, maintaining VAT accounting records, and filing VAT returns every quarter.

 

[Ian J]

I've just answered your thread on another forum so will cut and paste it here:-

The only advantage in not registering for Vat is in cases where the customer is a private individual and therefore unable to reclaim the Vat as it can give a competitive edge to your pricing.

If you don’t mind the additional red tape in making returns every quarter then register straight away and have a look at the Flat Rate Scheme as in many cases it’s possible to make a profit out of Vat depending on what you do and how you do it

 

[Karimbo]

this question has been pretty extensively covered over the past. In fact probably comes up every month or so.