Should I register for VAT?

Many business owners believe that registering for VAT is a lot of hassle, but it can work out to be beneficial in the long run. If you don’t register, for example, you won’t be able to reclaim the cost of buying things for your business. 

If the taxable turnover of your e-commerce business is at a certain threshold, the decision will be made for you and you’ll have to register for VAT. That doesn’t mean that businesses with a lower turnover can’t benefit from being VAT registered, however.

In this article, we outline the advantages and disadvantages of VAT registration to help you make the decision that’s best for your business.

This post is sponsored by accounting experts Osome. Enterprise Nation community members can get one month off Osome’s services on bookkeeping and accounting.

Do I need to register for VAT?

Registering for VAT is essential if the taxable turnover of your online store is more than £85,000 according to a 12-month calendar. 

You may also have to register if you're based outside of the UK but sell products in the UK or to UK-based customers. 

If my business isn't required to register for VAT, should I still do it?

If VAT registration is not a requirement for your online store, you can still complete the registration voluntarily if you wish. Consider the following benefits and downsides before you make a decision.

Benefits of registering for voluntary VAT

1. Authenticity

Registering for VAT will make your online business look authentic, successful and even improve its profile.

Displaying your VAT on your website and invoices also indicates to prospective customers, suppliers and investors that this is a large-scale business with an impressive turnover. It may attract more opportunities for your business.

2. Increased focus on business growth

If you have just started your e-commerce business, it might be wise to register for VAT sooner rather than later. This allows you to focus on your long-term growth plan without getting stressed about reaching the desired £85,000 mark.

After completing the VAT registration and the related accounting formalities, you can focus all your efforts on the core business areas.

3. Backdated voluntary VAT registration is possible

When you voluntarily register for VAT, it’s possible to backdate the registration by going back as far as four years from the present date. This means your business can recover the VAT charged on you for up to four years on products and up to six months for services. 

4. Apply and reclaim VAT 

When you look to sell any product or service through your online store, you need to apply VAT. 

Likewise, for purchasing materials, products, or services from third parties, you can recover VAT.

Drawbacks of registering for voluntary VAT

1. Documentation and paperwork

Although registering for VAT voluntarily can come with several benefits, it also has downsides. For many, this includes the upkeep of documentation and maintaining VAT invoices and receipts. 

Be aware that VAT returns are filed every three months, and this paperwork is mandatory for all companies that are VAT registered.

2. Some clients may not be VAT registered

If your clients don’t have VAT registration, they can’t recover VAT on the products or services you sell to them. Put simply, your products or services may seem more expensive to some customers after adding VAT, which could mean losing their business.

3. Your business may need to bear a large bill 

If the VAT you earned from selling your products or services exceeds the VAT you recovered from purchases, you may receive a sizeable bill from HMRC to settle up the difference.

How do I register for VAT?

If you’re thinking of VAT registration for your e-commerce business, you can do it easily on the government's Tax Services Website. The process takes around 20 days. 

Alternatively, you can register by post, which takes up to 30 days. You can do this if:

• you have a business in the European Union (EU) which sells remotely to Northern Ireland

• your business is importing products from an EU country into Northern Ireland, which are worth more than £85,000

• you are registering a set of companies that have different VAT IDs

• you are selling or getting rid of assets after recovering 8th or 13th Directive refunds on them

Pro tip:

Businesses should recover VAT by applying for the VAT return process after registering in the country where they incurred VAT. Without registration, VAT can be recovered through an EU Refund Claim 8th or 13th Directive procedure. VAT registration is necessary when you give taxable supplies of products or services in the country.

What’s next after I register for VAT?

After registering for VAT, you can start adding it to the products and services you sell, based on both standard rate and reduced rate products. Your business will have VAT liability on an ongoing basis. 

If you don’t register for VAT when necessary, HMRC can penalise you and also contact the online marketplaces where you conduct business. This could lead to your platforms being suspended and even a deadlock in your e-commerce business.

Expand your business stress-free

It can be stressful for entrepreneurs to grow a fast-moving e-commerce business and handle VAT and other taxes. Consulting professionals can help to take the stress out of managing taxation, ensuring that you comply with tax filing deadlines and keep financial documents up to date. Find out about Osome’s UK accounting services. 

Enterprise Nation community members can also get one month off Osome’s services on bookkeeping and accounting.