What are the advantages and disadvantages of VAT Registration?

Updated on May 23, 2022

Of all the taxes in the UK, the majority of newly formed businesses are most interested in learning more about VAT (or Value Added Tax).

When running a business, it’s critical to understand the regulations, requirements, and potential benefits and drawbacks of being a VAT registered company.

Should I register for VAT?

If your firm has a taxable turnover of £85,000 (2017/18 rates) or more, you must register for VAT. Firms that do not attain this turnover level, however, may choose to register voluntarily because it can bring a variety of benefits.

In the United Kingdom, the usual VAT rate is 20%. However, there are three other VAT rates to consider:

5 percent reduced rate
Zero Percentage Rate
N/A – Exempt

What are the advantages of being VAT Registered?

Being a VAT-registered company can help you save money. Here’s a look at a couple of them:

The first benefit of VAT registration is that it allows small firms to appear larger and more established. This is because, once you have a VAT number, no one will be able to know if your company’s turnover exceeds the threshold for VAT registration. This can make small firms more appealing to other enterprises, potentially resulting in increased business.

Another significant benefit of VAT registration is the ability to reclaim VAT on most products and services purchased from other companies.


If your VAT-registered company sells a product for £100,000, it may be required to charge an additional £20,000 in VAT (depending on your applicable VAT rate and whether the supply is VAT’able). At the same time, suppose your company bought £80,000 from vendors who charged you £16,000 in VAT. When you submit your quarterly VAT returns, this could result in your company having to pay a total of £4,000 in VAT.

Finally, becoming VAT registered can help small firms establish business to business relationships, as many international companies are hesitant to trade with enterprises that are not VAT registered.

Obviously, while VAT registration offers benefits, it also has drawbacks.

What are the disadvantages of being VAT Registered?

The main disadvantage of becoming VAT registered is that it requires you to charge VAT on all of your sales. As a result, your products and services will appear more expensive to customers, which may be unwanted for businesses who are not VAT registered. It is thus a particular concern for businesses that sell primarily or entirely to consumers.

The second major drawback is that VAT registration necessitates the submission of quarterly VAT returns. As your firm will need to retain and keep VAT invoices and receipts, additional paperwork and administration will be essential. This frequently results in additional fees from your accountant.

VAT registration has both positive and negative aspects. Choosing whether or not to register your business is undoubtedly a challenging decision.

VAT Registration enquiries

Please do not hesitate to contact one of our tax consultants at 020 8429 9245 or email us at [email protected] if you require further information or support with your VAT Registration.