Being VAT Registered is Killing My Business
Indeed, the entering of VAT registration can greatly affect businesses especially small businesses. Being VAT Registered Is Killing My Business, Some businesses may take off well after VAT registration while others may begin to have setbacks because they got hit badly.
What can you do when your business is getting worse after VAT registration? In the following section, we shall look at what you can do when VAT registration is affecting your business adversely.
What is VAT?
It is a consumption tax levied on sales of goods and services; VAT or value-added tax is charged when businesses purchase items or inputs from suppliers and pay VAT on purchases made by businesses within the country. Then, your business will levy VAT on the end price of your products or services. This would be borne by your customers.
Businesses that are VAT registered must collect VAT from their clients/customers and then pass this money on to the government.
Normally, your business is only required to pay the government the difference between the VAT you paid the supplier and the VAT you have since collected from your transactions.
Who Needs to Register for VAT?
Requirements for VAT registration by businesses will differ from country to country and sometimes even from city to city. When you begin your business, it’s worth checking when you will have to register for VAT. VAT registration can depend on:
Turnover Threshold: The sales threshold, also known as the earnings threshold, is a limit above which your business will need to be registered for VAT if the annual profits are higher than this specified limit.
Types of Businesses: There may be some ‘businesses’ that do not need to register for VAT immediately. For example, freelancers or sole proprietorships have a somewhat higher threshold for VAT registration.
Cross-Border Transactions: Whether your business imports/exports goods or services can determine whether you will need to register for VAT.
Digital Goods or Services: If the services sold are digital goods or digital services in several countries, you’ll probably have to comply with all jurisdictions’ VAT requirements.
Do You Lose Money in Registering VAT?
The short answer would be NO, you are not losing the money merely by being registered in VAT. This kind of payment is made to VAT consumers usually those customers to buy your products and you would have only to forward them as a matter to pass to the local or national government concerned. Just as a businessman will do you are not to lose much money at this.
However, there are still some business owners who regard it as ‘killing my business’ to be VAT-registered. VAT registration gives an air of shrinking profits.
What Are the Disadvantages of Being VAT Registered?
If in your messy business thoughts VAT registration feels like struggling against a trend on such a preposterous line of argument, then it is perhaps:
Administrative Burden – Your business to maintain VAT records and file VAT returns. Besides, there will be the VAT-related audits. That is additional administrative work taken away from your business, making it use fewer resources.
Customer Impact – Charging VAT means charging customers extra for the same products or services they would otherwise buy from you. And they may decline to purchase from your business entirely.
Competitive Disadvantage – When a direct competitor is not registered for VAT, the rates they charge will be lower. Your customers would rather select to do business with that company to avoid incurring costs such as VAT.
Cash Flow Issues – A long payment cycle in a business can be affected by VAT, as it impacts cash flow. If you have to wait for customers to respond to your invoices, you still need to pay the VAT charged on their transaction by a deadline even though you haven’t received their payment.
Are There Any Advantages to Being VAT Registered?
Although there are disadvantages to registering for VAT, there are also advantages. The advantages are:
VAT Reclaims and Refunds – A VAT-registered business may reclaim the VAT paid to suppliers on products or tools needed to supply services to customers. If you collect a lesser amount from customers as VAT, you may apply for refunds.
Professional Reputation – Being VAT registered makes your business look legitimate and trustworthy to potential customers. This also works in your favor if you are looking for a loan or credit from a major financial institution.
B2B Sales Business to business – Sometimes business-to-business transactions require companies’ VAT registration. Once the business is registered, purchases can be made from the businesses and sales can also be made to businesses for long-term partnerships with any serious suppliers or clients.
What can I do if VAT registration is hurting my business?
If VAT registration is hurting your business, then there are some things you can do to lessen your VAT liabilities such: either as:
Evaluate the situation- Start by evaluating the VAT registration’s impact on your business through cash flow, administrative burden, and the perception of customers. Would you be losing customers because of your increases in prices due to VAT? Is it too much paperwork?
Flat-Rate Schemes – In this scheme, you can pay VAT based on your total profits rather than accounting for VAT on every purchase. The amount of VAT liabilities decreases with an increase in gross sales.
Pay One’s Invoices – Cash accounting schemes will help you maintain the cash flow to the extent that your business activity invoices for all customer payments. This indicates passing onto VAT requirements once a customer has paid for the purchased goods or services.
VAT-NON VAT EXEMPT PRODUCTS AND SERVICES: Some products and services are exempted from VAT such as some type of foodstuffs and certain medical supplies. Building your catalog of such products can help reduce VAT liabilities considerably. However, supplies required for the production of such goods or services will not be able to claim the VAT on them.
Zero-Rated Products – In the same way, some products may have a zero rate for VAT. It simply means that, even though they are still under the scope of VAT, no VAT is charged. It is helpful because you can reclaim VAT spent on supplies for zero-rated products and services.
Lease/Hire Supplies- Actually, it could help you save expenses on lease and hire supplies when you are not able to reclaim VAT on purchases made from the suppliers. For instance, if you sell t-shirts, instead of buying a printing machine to produce these with VAT, you can hire such machines and leave out VAT completely.
Group registration – there are business owners with several businesses that individually must make VAT payments. Certain jurisdictions would allow these businesses to group for VAT purposes and determine the amount of VAT based on total gross. That can help reduce VAT liabilities and administrative responsibilities.
Voluntary Deregistration – You may be able to deregister your business for VAT voluntarily if your taxable turnover has fallen below the registration threshold, which is £85,000 in the UK currently. Deregistration might be less complicated and will certainly cut your administrative costs.
Adjust Your Pricing Strategy – If you think VAT is making your prices not competitive enough, look into adjusting your pricing strategy and explore if you can absorb the cost of VAT or trim the profit margins.
How To Quit Paying VAT?
Voluntarily registered for VAT, but not yet meeting the conditions of compulsory registration? You can withdraw your registration. Check the requirements in your jurisdiction first since your business may be exempted depending on the types of goods or services that you offer.
However, if your business exceeds the threshold of VAT registration, you have to pay that VAT to the relevant government authorities. You are legally obliged to pay VAT even though you feel “being VAT registered kills your business.”
If you do not follow the VAT laws you may be penalized or even legal action can be taken against your business.
Generally, conditions that define eligibility for registration for VAT differ from one company to another. They are dependent on the country in which your business operates as well as international trading involvement. Those businesses that reach a particular threshold in their activity levels or those dealing with specific types of products and services will be liable for VAT registration.
If you think VAT registration is killing your business, there are slight chances of reducing its effects on your income. This includes maximum utilization of all flat-rate and cash accounting schemes, focusing mainly on exempt or zero-rate products and services, and group registration.
Lastly, it is in the long run that voluntary VAT registration can help you, but again, this choice must be made with consideration. This should ensure that despite registering yourself for VAT voluntarily, your business will still be on its track to success.
Icon Offices provides services of VAT registration from any corner of the globe to any kind of business in the UK for whom such VAT registration is available.
FAQs
What is voluntary VAT registration?
Voluntary VAT registration is when you opt to register for VAT, even if your business does not meet the thresholds for mandatory registration, which stands at £85,000 currently.
Is voluntary VAT registration worth it?
Some advantages can be gained through voluntary VAT registration. For example, if you pay large sums of VAT to suppliers, it might be worth your while to register for VAT to reclaim some of that money.
Is being VAT registered bad?
Voluntary VAT registration for a business that does not reach the limits for registration has considerable disadvantages. Check that the amounts you will be able to reclaim from the business acquisitions are balanced with the amount of VAT that you will have to charge your customers.
