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Voluntary and compulsory VAT registration

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The tax law in the UK precisely defines who must complete the VAT registration process. If you don’t fall under any of the required criteria, this registration is voluntary. It comes as no surprise that some business owners are concerned about the financial viability of such a move. Undoubtedly, registering as a VAT payer in the UK offers certain benefits. On the other hand, such a decision also entails certain obligations. Therefore, we will try to answer the question of when is it worth voluntarily registering as a VAT payer?

In this article we will answer a few most common questions:

But what is a VAT?

Value Added Tax (VAT) is levied on the majority of products and services offered by VAT-registered firms in the United Kingdom. It also applies to some EU and non-EU products and services imported into the UK. Businesses that are VAT-registered add VAT to the price of goods and services they offer to both commercial and non-commercial customers.

So, when do I need to register for VAT?

The primary condition for registering for the VAT is the total income. VAT registration threshold 2022 is 85,000 pounds per year (2022/23 tax year), and it will remain unchanged until March 31, 2024. If your company’s revenue exceeds this number, registration will be mandatory, so you must keep a close eye on the annual turnover accounts. However, it has lately been suggested that the VAT registration requirement may also apply to other types of businesses. This is a consequence of recent changes to tax rules. As a result, any foreign company owners who sell things in the UK for less than 135 pounds must register for VAT.

Where did this amount come from? It’s simple. Customs charges apply to anything costing more than £135. As a result, you won’t have to charge them any more VAT. When exchanging lower-cost goods, though, this tax must be paid.

How to register for a voluntary VAT

HMRC has not yet developed separate procedures for mandatory VAT registration and voluntary VAT registration. In both cases, the formalities are the same. So, where do you begin the registration procedure?

First and foremost, you should visit HMRC’s website – or come to our office. There you will discover the important information on the limited company registration procedures. You can also use this website to complete the proper registration form. It will be necessary to complete the following steps in order to finish the registration:

  • National Insurance number (if not issued, provide a unique taxpayer reference number (UTR)
  • A certificate of UK limited company registration
  • Limited company bank account number

Also, there are four options you can choose from when paying VAT tax. Unfortunately, determining which option will be the most profitable can be difficult at times. As a result, tax expert advice and the accountant are frequently used by business owners while registering. With their help, you’ll be able to pick the best tax-paying strategy. So don’t wait any longer and just contact us now.

What are the advantages and disadvantages of VAT voluntary registration?

It’s pointless to analyse the pros and cons of mandatory VAT registration. However, all businesses who can make such a decision ask similar questions. So, what’s the reason for paying VAT voluntarily? It will make transactions with other businesses considerably smoother. You will also be able to apply for a tax return on purchases made for business purposes. From the standpoint of tax optimization, this is the single most essential factor. Additionally, when your company sells its items outside of the UK, it will receive a tax refund.

Every business will benefit from the above-mentioned perks. Unfortunately, there also are certain disadvantages to voluntary registration. They mostly involve the taxpayer’s duties. One of the most fundamental difficulties is, of course, the increase in the pricing of the provided items as a result of the addition of VAT. Companies supplying items entitled to zero or reduced VAT at a rate of 5%, on the other hand, will be unaffected.

The requirement to retain accounting records, on the other hand, is already significant. VAT tax payers must keep track of their spending on a regular basis. In the case of an HMRC audit, such paperwork will be required. As a result, the business has two choices to consider. The first step is to recruit an accountant or another qualified specialist. The second option, is to outsource accounting to a third party – in this case, we invite you to contact our office.

Voluntary VAT registration – summary

If your business has a turnover of less than £ 85,000 (2022/23 tax year), you don’t need to register for VAT in the UK. With such amounts, registration is completely voluntary. So, what determines its profitability? There are a few things to think about in this situation. VAT payers, on the one side, can claim a tax refund for business purchases. They also get access to specific services while transacting with other companies. The requirement to pay VAT, on the other hand, will increase the pricing of the items available.