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Why might your business voluntarily register for vat?

June, 2023

Businesses must register for VAT once their turnover exceeds the VAT registration threshold of £85,000 (fixed until 31/3/2024). But there are times where a business may wish to register for VAT voluntarily.

Why would that be?

Benefits of VAT registration

Being registered for VAT can attract larger clients or business-to-business (B2B) customers who are required to deal with VAT-registered suppliers. Many companies, especially larger ones and those in the public sector, prefer to work with VAT-registered businesses.

Voluntary VAT registration can give a business a competitive advantage over non-VAT-registered competitors. VAT registration is perceived by some customers as a sign of professionalism, size, credibility, longevity and adherence to regulations, which can help a business stand out in the market and gain trust from potential clients.

When a business anticipates future growth that will eventually exceed the mandatory VAT registration threshold, voluntary registration can be a proactive step. It allows the business to establish the necessary administrative systems, processes, and VAT compliance procedures in advance, making the transition smoother when the threshold is crossed.

If a business engages in international trade, voluntary VAT registration can facilitate smoother transactions with overseas customers and suppliers. It ensures cross-border compliance with import/export regulations, simplifies VAT-related paperwork, and may improve the business’s credibility in the eyes of international partners.

By registering for VAT, a business can claim back the VAT it has paid on its purchases and expenses. This ‘input tax recovery’ reduces the overall VAT burden and improves cash flow, especially if the business has significant VAT inputs relative to its sales.

It’s important to note that the decision to voluntarily register for VAT should be carefully considered, taking into account the specific circumstances, market dynamics, and potential costs associated with VAT compliance. Consulting with a tax advisor or accountant can provide valuable insights tailored to the business’s situation.

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