The Pros and Cons of Being VAT Registered

A value added tax consumption levy states the amount that businesses are required to charge on every sale by their registered firms. From time to time, every country has made VAT registration compulsory provided a certain prescribed turnover is crossed by business operations. Other businesses have also voluntarily complied with VAT registration even when their turnovers do not go near the stipulated threshold. This is on account of certain advantages that they see. This article is for business people who want to know about the benefits and disadvantages of being VAT Register to help decide their business to increase their business.

Pros of Being VAT Registered

We will talk about some of the key benefits of being VAT register here as follows:

1. Credibility and Professionalism

VAT registration makes a business appear more established and professional. Clients and suppliers prefer dealing with VAT-registered companies, indicating that a business is successful and in compliance with tax law. This can be particularly valuable for startups or small businesses trying to gain credibility in the marketplace.

2. Reclaiming VAT on Purchases

Reclaiming VAT on business expenses is one of the most significant advantages of VAT registration. Businesses can reclaim VAT paid on goods and services purchased, and this can halve their costs. This is particularly beneficial to businesses that hire expensive machinery, raw materials, or services.

3. Competitive Advantage in B2B Transactions

A business that sells predominantly to other VAT-registered concerns finds it advantageous to be VAT-registered. VAT-registered companies can claim back the VAT on their purchases, and hence, they tend to prefer suppliers who can issue them enabling them to issue them with VAT invoices. This gives such VAT-registered businesses a competitive edge over non-registered counterparts in dealing with corporate clients.

4. Avoiding Penalties and Legal Issues 

Businessmen crossing the VAT limits without registration will be subjected to penalties and fines. It is protection against penalties for violating tax law, in addition to avoiding run-ins with the government and the last minute chaos in legal affairs.

5. Improved Cash Flow Management

The company can, for example, charge VAT during the period when it is operating on credit terms, before actually having to remit that tax back to the government. The result is better temporary cash flow advantages.

6. Easier to Work with Larger Companies

Most giant companies don’t want to deal with non-registered businesses because they cannot reclaim VAT on such transactions. So, they work with VAT-registered suppliers only. Only being VAT registered gives opportunities to collaborate with such large corporations.

7. Potential for Voluntary Registration Benefits

Again, a few businesses might register under VAT voluntarily rather than meeting the required turnover limits in order to claim VAT refund on purchases because this it gives as a good option for high initial costs and businesses that might expand very fast.

Cons of Being VAT Registered

The benefits of being VAT registered as well as their disadvantages are sufficient. Here we will mention the disadvantages of which are as follows:

1. Increased Paperwork and Administration

VAT registration entails new tasks such as maintaining records regarding VAT transactions, filing VAT returns, and compliance with tax requirements. Maintaining proper books of account is a time-consuming exercise and might require hiring an accountant.

2. Higher Prices for Consumers

Once a business is registered under VAT, it is bound to charge VAT on all sales while increasing the price to the consumer. From there on or for customers who are not VAT registered, such as individuals or small businesses that are below the VAT threshold, reclaiming this amount becomes impossible, therefore making it more expensive for such consumers.

3. Cash Flow Challenges

Though under certain circumstances VAT collection can assist in cash flow, on the contrary it requires the business to periodically pay VAT to tax authorities. Therefore a portion of this collection will have to be kept aside for VAT payments, leading to a case of cash flow challenges when mismanaged.

4. Risk of Penalties for Mistakes

VAT is very complex, and this gives rise to penalties when there are mistakes in computation or reporting regarding VAT. Businesses should ensure correct keeping of records and timely submission of returns pertaining to VAT.

5. Quarterly VAT Returns

Almost every other country requires VAT businesses to submit VAT returns quarterly. This renders the businesses to keep updating their financial records now and again, in turn, devoting time to tax compliance being one of the burdens for small businesses.

6. Limited Benefit for Small Businesses with Low Costs

Then with very less expenditure or mainly selling to non-VAT customers, getting registers under VAT does not yield much benefit to that business. In fact, the extra administrative work as well as prices may exceed the advantage of recovering VAT on purchases.

Should You Register for VAT?

It depends on your business and your budget whether to register for VAT or not. We will tell you about some important points here that make it easier to know. How important is it for VAT to be registered or not?

1. Another context where VAT is normally beneficial is in a business where most of the transactions are with other VAT-registered businesses.
2. When setting up a business and incurring a lot of taxable purchases and expenses, registration becomes advantageous as it saves tax as input VAT.
3. Importantly, attaching VAT may necessarily increase the price at which the business sells its products or services, and thus may affect its competitiveness if most customers are not VAT registered; these would be parties such as individuals or small businesses.
4. Businesses approaching the registration threshold are again advised to prepare for VAT registration so that they can avoid penalties.

Conclusion

VAT registration is not without its merits, as it entails certain advantages and obstacles. For one thing, it propels growth by enhancing business credibility, enables tax saving on purchase investments, and opens the door for partnerships with larger firms. On the other hand, it also entails certain administrative burdens, as it affects cash flow and adds the requirement that sales invoices incur VAT. Businesses have to evaluate carefully and concisely whether VAT registration would be an asset to them in terms of finances and customers. If you are caught up in all the mess that is VAT in business, get in touch with a professional call answering service to ensure you manage customer conversations while leaving no opportunity unattended. View expert call answering solutions here: call-answering service