What are the advantages of being VAT registered?

Registering for VAT is compulsory if your business exceeds the VAT threshold of £85,000. This means that VAT is not just a concern for larger companies, so it is definitely worth weighing the advantages and disadvantages of VAT registration.

Here, the experts at The VAT People outline the main advantages of being registered.

Claim future VAT back

Any VAT that you pay when buying goods and services can be reclaimed, provided it is incurred in the course of making onward taxable supplies. The VAT you pay, often referred to as "input tax," may end up exceeding the VAT you charge to your customers, also referred to as "output tax.". An example of this is if you make zero-rated supplies but purchase standard-rated goods and services in the course of making these supplies. You can claim the difference back from HMRC where your input tax is greater than your output tax, saving your business money. 

Pre-registration Input Tax

Your company can recover VAT incurred on goods from the previous four years after completing the VAT registration process, subject to the normal VAT recovery rules. The goods must still be in use in order to be claimed back. Pre-registration input tax can be recovered in relation to services incurred in the six months before your effective date of registration. This can yield a sizable return depending on the type of business you are undertaking. However, your company must have been in operation for those four years in order to be eligible to make this claim. Additionally, you must be able to present VAT invoices and records from that time.

Strategise for further growth

Once VAT-registered, your business is ready for further financial growth; you will no longer need to keep an eye on the registration threshold. Your business’s tax planning strategy will need to change to stay in line with tax regulations, and you should seek ways to continue to grow your business. Post-registration, your tax planning and strategy can focus on ways to use the advantages of being VAT-registered, such as the ones above, and keeping the necessary VAT records required of all taxpayers.

How to choose the most appropriate VAT scheme for you

There are numerous VAT schemes available to businesses, so it's critical to think about which one, if any, is appropriate for your specific needs.

For firms with a turnover of less than £150,000, there is the flat rate scheme. With this programme, you can't reclaim the VAT you pay on purchases; instead, you must pay a percentage of your turnover to HMRC at rates that are set for specific industries.

As with any VAT scheme, there are pros and cons which much be assessed carefully to ensure your business is maximising its VAT position.