Introduction to UK VAT registration
Value Added Tax (commonly known as VAT) is a tax system applied to VAT registered businesses in the UK. This specific tax is applied to most of the goods and services available in the modern-day market. In addition to that, VAT is applicable to the goods and services that are imported from other countries to the UK. The companies that are registered for VAT can reclaim the VAT amounts charged on them when purchasing goods or services. In other words, you are not entitled to reclaim VAT charged to you if you are not VAT registered business. Once a business has completed its UK VAT registration, it can be considered as a mini tax collector too.
Why it is necessary to consider UK VAT registration
You will HAVE TO register for VAT;
- If you are a business based in the UK and you exceed the VAT registration threshold for a duration of 12 months (consecutively), UK VAT registration is mandatory for you. This threshold updates every year and as per the latest update (implemented on 1 April 2017), the VAT registration threshold is £85,000.
- In addition to that, you may have registered for VAT if you take over an exciting VAT-registered business. However, this obligation is applicable only when the business you purchase has reached the VAT threshold (during the past 12 months).
- You will be forced to go for UK VAT registration if your business involves trading outside of the UK.
The businesses that fail to register for VAT will have to pay a late registration fee probably with a failure- to-notify penalty. On top of that, an interest and a surcharge will be applied. However, if you notice a temporary hype in your revenue and reach or exceed the threshold, you may consider asking for an exemption (through HMRC).
You can register for VAT voluntarily
You can consider registering your business for VAT even when it hasn’t reached VAT threshold. This is called voluntary registration. Usually, businesses go for voluntary registration due to a couple of key reasons.
- VAT registration adds credibility
Other companies and customers prefer to deal with VAT registered companies. In fact, a VAT registration is a sign of credibility; a business can appear to be bigger with a VAT registration.
- Ability to Reclaim VAT
Once you are registered for VAT, you are obviously eligible to reclaim the VAT charged on you when making the purchases.
Overall, it is much better to stay as a VAT registered business. Although most of the entities can register for VAT without much trouble, certain instances may prevent a business from registering. For instance, if a particular entity is not recognizable by the HMRC as a legitimate business, it cannot register for VAT. In addition to that, if you are a business that sells tax-exempted goods or services only, you will not be able to register for VAT. The bottom line is, however, UK VAT registration is important for any legitimate business.