What are the advantages and disadvantages of VAT Registration?

Updated on June 27, 2022

Most newly formed businesses in the UK are eager to learn more about VAT, which is one of the country’s many taxes (or Value Added Tax).

Being a VAT-registered business has a number of benefits and drawbacks that you should be aware of if you own a business.

Should I register for VAT?

If your firm has a taxable turnover of £85,000 or more (2017/18 rates), you must register for VAT. Even if their revenue falls short of this threshold, companies that aren’t required to register can nevertheless benefit from doing so.

It’s worth noting that the typical VAT rate in the UK is 20%. There are, however, three more VAT rates:

reduced rate (5% instead of 10%)
One Hundred Percent (100%)
Non-applicable – n/a

What are the advantages of being VAT Registered?

Your firm may benefit from registering for VAT. Here, we’ll take a look at a couple of them:

One benefit of VAT registration is that it gives the illusion of a larger and more established business. As a result, no one will be able to identify if your company’s revenue exceeds the VAT registration level unless you obtain a VAT number. In the view of other firms, small enterprises can have a certain attractiveness, which could lead to additional business for you.

Additionally, VAT registration permits you to reclaim VAT on most goods and services you buy from other firms.


You may have to pay an additional £20,000 in VAT if your VAT-registered business makes a sale of £100,000 pounds, depending on your applicable VAT rate and whether or not the supply is VAT’able. Let’s say your company bought $80,000 worth of goods from suppliers who charged your company $16,000 in VAT. When you file your quarterly VAT returns, you may be required to pay a total of £4,000 in VAT.

In addition, many multinational corporations are unwilling to trade with businesses that aren’t VAT Registered, therefore becoming VAT Registered might help small businesses establish a company to business relationships.

Obviously, while VAT Registration has its advantages it also has its disadvantages

What are the disadvantages of being VAT Registered?

The main drawback of VAT registration is that it mandates your organization to include VAT on all sales. Therefore, shoppers will see an increase in prices and businesses that aren’t VAT-registered might find this disagreeable. As a result, businesses that sell primarily or exclusively to the public have specific challenges.

Another major limitation of VAT registration is that it forces you to file quarterly VAT returns. Keeping track of VAT invoices and receipts would necessitate additional paperwork and administration, which can’t be avoided. In many cases, this entails an additional fee from your accountant.

There are both advantages and downsides to VAT registration. It’s no secret that determining whether or not to register your business is a difficult decision.

VAT Registration inquiries

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].