- Posted 11th March 2015
Pros & Cons of Registering for Value Added Tax (VAT)
What is Value Added Tax? Well, many of you may be aware about it, some may not. It is a tax charged on the consumption on the goods and services in the UK. Although it might be difficult to understand the value added tax at first when you are just starting your business, VAT is very important aspect of your business which must be taken care of. Registering for VAT will impact on your financial position. If you do not register for Value added tax in time, HMRC will punish you with heavy penalties. That is the reason it should be registered sooner to avoid such complications.
Pros
- The taxes gained from the registered company will add to the revenue of the country.
- VAT registered companies can reclaim all the VAT incurred on business purchases and expenses.
- Your business will carry a certain amount of credibility.
- You will become familiar with different aspects of VAT reporting and cash management before you are forced to.
- It will create a perception of your company as a larger enterprise than it already is to your customers.
Cons
- A standard 20% should be added onto the purchase of your services.
- Since value added tax is a regressive tax, it will benefit the high income people and not the people under poverty line.
- VAT would create an open system which will increase the chances of fraud.
- You need to register and file quarterly returns with HMRC. This administrative issue can be burdensome as record keeping requirements are very strict.
- As VAT governing rules are complex, quarterly reporting can expose your business to compliance risk.