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what are the benefits of being VAT registered?

 2:00 pm on Apr 27, 2008 (gmt 0)

whats are the pro's and con's of being VAT registered?

Cheers Guys


Lord Majestic

 4:36 pm on Apr 27, 2008 (gmt 0)

Pro: you will get VAT back that your business paid for business stuff it buys - servers, printers etc, this means you will effectively pay less money.

Con: you will have to charge VAT yourself. This will make your prices look higher, however if you sell to VAT registered businesses then they would get that money refunded, so this is a con only if you sell to consumers or small non-VAT registered businesses.


 5:05 pm on Apr 27, 2008 (gmt 0)

the cons are that it costs you money to present your VAT returns. (eg accountancy costs - or if you do it yourself then your own time)

however you don't have a choice about it ... if your turnover is over the threshold you must register.

if your turnover is lower then except for very rare cases where you are a net receiver rather than a payer, there is absolutly no benefit to being registered - (except it may possibly make you look more professional in some sectors, eg if you freelance it may make people think you turn over more money and are thus busier than you actually are)


 6:34 pm on Apr 27, 2008 (gmt 0)

Except if you resell/retail to businesses. You get VAT back on any stuff that you buy for clients. If you are not VAT reg, your prices are 17.5% higher than your (VAT reg) clients can get it for themselves.


 6:28 am on Apr 28, 2008 (gmt 0)

From 1 April 2008 the VAT threshold is 67,000. If you turn over more than this you must register for VAT and hence become an unpaid tax collector for HM government.


 12:32 pm on Apr 28, 2008 (gmt 0)

Note that your prices won't be 17.5% higher. Take this as a calculation:

a) NOT VAT Registered: You buy at 100 (inc VAT) and sell at 120 (inc VAT). You make 20.

b) VAT Registered: You buy at 85.11+VAT (100 in total) and claim the VAT back. You want to still make 20 profit so you sell at 105.11+VAT (123.38) and pay the VAT to HMRC. The customer pays just 3.38 more and you pay 18.27 to the VAT man (VAT on sale) but can claim back 14.89 (VAT on cost), meaning you owe Mr VAT man 3.38.

That is purely on a sale by sale business, some businesses can apply for "simpler" VAT rules, however some businesses would pay more VAT than they earn in profit whilst others may be better off. On these you pay a % of your turnover but you cannot claim back any costs.

[edited by: PCInk at 12:33 pm (utc) on April 28, 2008]


 6:39 pm on Apr 28, 2008 (gmt 0)

a) NOT VAT Registered: You buy at 100 (inc VAT) and sell at 120 (inc VAT). You make 20.

But your customer could buy it for 85.11!

If you serious about retailing to businesess, you want to VAT registered or the tax man will take 17.5% from every transaction you do. The only exception is if you are trading in only vat-exempt supplies such as education or advertising for charities.

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