What are the advantages and disadvantages of VAT Registration?

Updated on July 20, 2022

Of all the taxes in the UK, most of the newly established firm are interested in finding out more information regarding VAT (or Value Added Tax) (or Value Added Tax).

When you operate a business, it is necessary to understand the regulations, requirements, possible advantages and downsides of becoming a VAT registered business.

Should I register for VAT?

VAT Registration is necessary if your firm generates a taxable turnover of £85,000 (2017/18 rates) or more. Nevertheless, enterprises that do not attain this turnover may choose to register voluntarily as this might bring a variety of advantages.

The standard rate of VAT in the UK remains at 20 percent . There are however in actuality 3 other rates of VAT which are:

Reduced Rate – 5 percent
Zero Rate – 0 percent
Exempt – N/A

What are the advantages of being VAT Registered?

Being a VAT registered business can be helpful to you. We look at a couple of these here:

The first advantage of becoming VAT Registered is that tiny firms can offer the illusion of being bigger and more established.

This is because once you have a VAT number, nobody will be able to simply identify if your business’ turnover exceeds the VAT registration level. This can give small businesses a certain attractiveness in the eyes of other firms and could lead to you winning more business.

Another key advantage of VAT Registration is that it allows you to reclaim VAT on most goods and services acquired from other firms.


If your VAT registered business makes a sale of £100,000 pounds it may have to include an additional £20,000 of VAT (this is of course subject to your relevant rate of VAT and whether the supply is VAT’able). At the same time, let’s say your business purchased £80,000 from vendors that charged your business £16,000 of VAT. This could result in your firm being obliged to pay a total of £4,000 of VAT when you file your quarterly VAT returns.

Lastly, being VAT Registered helps facilitate business to business interaction for small firms as many international companies are frequently reluctant to trade with businesses who are not VAT Registered.

Obviously while VAT Registration has its perks it also has its downsides

What are the disadvantages of being VAT Registered?

Having a VAT registration is a major drawback because it requires you to add VAT on all of your sales. Therefore, shoppers will see an increase in prices and businesses that aren’t VAT-registered might find this disagreeable. Direct-to-consumer businesses face significant challenges in this regard.

VAT Registration, the second major drawback, necessitates the submission of VAT Returns on a quarterly basis. Keeping track of VAT invoices and receipts would necessitate additional paperwork and administration, which can’t be avoided. This can lead to further fees from your accountant.

VAT Registration has both its advantages and disadvantages. Undoubtedly, deciding whether registering your company is worth it can be a difficult decision.

VAT Registration enquiries

If you would like more information or require assistance with you VAT Registration, then please do not hesitate to contact one of our tax specialists at 020 8429 9245 or email us at [email protected]