When you are starting up as a business, there are going to be a lot of terms and phrases you hear that can be confusing. In particular, a lot of businesses panic when they need to decide whether to go VAT-registered or not. What does this mean and does it offer any benefits to a business?
Well, the answers to these questions are going to depend on what your business is and where you plan to go in the future. Here is your guide on everything you need to know about VAT in Pinner.
What is VAT?
First of all, let’s start off by looking at what VAT is. This is often what confuses people because nobody explains it. VAT stands for Value Added Tax. This is an income for the government and it is attached to the value of goods and services. Thus, if you are a VAT-registered company, you are going to charge VAT on the goods and services you are offering to customers.
There is a standard VAT rate that you will need to pay attention to. This is 20 percent. Thus, you are going to have the price of your goods and services. Then, there is going to be 20 percent added onto this, which is going to be the VAT.
Note that there is going to be more administration involved when you become a VAT-registered company. For instance, you will have a duty to make sure that you get the VAT from all of your customers when they make a purchase for goods or services. You will also be in charge of filing a VAT return through the working year. Of course, there are professional services that can help you with this. But, these are responsibilities that you have to be aware of from the beginning.
Who has to be VAT-Registered?
There are some businesses that must be VAT-registered. For example, if your business has a turnover of over £85,000, you are going to have to register for VAT. This is because you are over this threshold. It is possible for you to voluntarily register for VAT. You are able to do this if you make less than £85,000 and the products you sell are not exempt. A lot of people think; why would you want to do this? We are going to discuss that below.
Are there Any Benefits to Being VAT-Registered?
When business owners hear that VAT is added onto their bill to a client, they wonder; is there really any benefit to being VAT-registered? After all, the customer is going to have to pay out more money. Well, the answer is yes. There are many benefits you can enjoy.
The first advantage is that this title can give you credibility. A lot of customers are looking for money than just a cheap price on goods or services. Instead, they are looking for reputable businesses and people that they can trust. Often, stating that you are a VAT-registered company can do this. A lot of customers trust a company like this and it can give the impression you have been in business for a while. Therefore, you can enjoy credibility when you are VAT-registered, which can help you secure clients and large projects and sales.
Another huge benefit that you can look forward to when you become a VAT-registered company is the VAT refunds you can claim. Let’s break it down. Say that you sell a service to a customer. They are going to pay for the price of the service, as well as 20 percent for VAT. Well, you are able to reclaim the VAT from this transaction. This is a great element for businesses, which means you can benefit from better cash flow. You can use this money for whatever you want. Indeed, a lot of businesses choose to reinvest it into their company and it can help you grow and expand.
To Summarise
Hopefully, after reading this guide, you have a better idea of what VAT is and what it means to be VAT-registered. This is something that you have to do if you earn over £85,000 a year. the standard rate for VAT is 20 percent and this is going to be added to products and services. It is possible to volunteer to be VAT-registered. There are a number of benefits to being a VAT-registered company. For example, you can gain a good reputation and credibility, which can increase sales. In addition, you can claim back the VAT for better cash flow.