pros and cons of being vat registered

Pros and Cons of Being VAT Registered

Pros and cons of being VAT registered is a consumption tax that's placed on a product whenever value is added at each stage of a supply chain. VAT registered can provide a significant range of benefits to businesses of all sizes; however, there is a good deal of administration involved. You must legally register for VAT when your taxable turnover (not your profit) for the previous year exceeds £85,000 (or is expected to do so within the following 30 days.

The decision to register for VAT is not one to be taken lightly, as it involves considerations that can impact the financial health and operational dynamics of a business. By understanding the advantages and disadvantages, businesses can adeptly manage their finances, enhance market credibility, and position themselves for sustained success.

When these products and services are sold to both commercial and non-commercial businesses, VAT is added to the sale price of these goods by VAT-registered companies. Conversely, VAT-registered businesses can normally reclaim the VAT paid when buying products or services. How to avoid paying vat?.

How to understand pros and cons of being VAT registered? Many small businesses with a turnover of less than the VAT registration threshold decide to become VAT registered on a voluntary basis before they are legally obliged to register for VAT. They choose to do this for various business reasons which we will discuss below.

The Pros and Cons of being VAT Registered

disadvantages of being vat registered

  • Reclaim VAT: You can reclaim VAT on most products you purchase from other companies. If your customers are VAT registered businesses they will be able to reclaim the VAT from HMRC. Your prices will still be competitive and you can recover the VAT on your costs.
  • Established Business: A VAT registration number makes your business seem more established and professional. Pros and cons of being VAT registered are very important to discuss. This can be appealing to other firms, many of whom may not be willing to do business with a non-VAT registered entity because it is considered too small.
  • Improved Cash Flow Management: VAT-registered businesses can benefit from the VAT payment and refund system, contributing to more effective cash flow management. This is particularly valuable for businesses with fluctuating revenue streams.
  • Attract Better Clients: For a start, you may be able to attract better clients. They may treat you more seriously if you are VAT registered because it shows that you run a serious business and suggests you are earning over a certain amount, even if you're not.
  • Global Trade Facilitation: For businesses engaged in international trade, VAT registration can simplify cross-border transactions. It can enhance your ability to reclaim VAT on imports and may facilitate smoother interactions with overseas partners.

The disadvantages of voluntary VAT registration

Here are some disadvantages of being VAT registered to discuss in detail:

  • Expensive for someone: Some of your clients and customers may not be VAT registered (which means they cannot reclaim the VAT on items) and therefore any products or services that you sell with VAT may be too expensive or unreasonably overpriced for these customers.
  • Administrative burden: VAT compliance involves complex record-keeping and regular submission of VAT returns. This administrative burden can be overwhelming for businesses, diverting valuable time and resources away from core operations. Ensuring accurate documentation and adhering to VAT regulations may require additional advice, adding to operational costs.
  • Unexpected VAT Bill: You may be faced with an unexpected VAT bill. This can create cash flow issues if you're unprepared for an unexpected VAT bill. If your output VAT is higher than the input VAT, as it nearly always will be, then you need to pay the difference to HMRC.
  • Loss of customers: In addition, you’ll have to charge your customers more and they may be able to find a cheaper alternative if one of your competitors does not charge VAT. This could affect you more if your customers are the general public rather than VAT-registered businesses that can claim back their VAT.
  • Cash Flow Challenges: While VAT-registered businesses can reclaim input tax, there may be a time lag between paying suppliers and reclaiming VAT. This time gap can pose cash flow challenges, especially for businesses with tight financial margins. For further insights, consider reading about Being VAT registered is killing my business; it's quite important to get better results.

Personal Review

Pros and cons of being VAT registered are quite important to get better results. Registering for VAT is a decision worth thinking over as it does come with both benefits and drawbacks. The legal requirement to become a VAT registered company should not be seen as a negative; it means that you‘ve a significant turnover and have enjoyed a certain level of financial success. Many UK businesses will find that the majority of their products will have a VAT charge on them once they are VAT Registered and they know pros and cons of being VAT registered. Read our comprehensive guide if you don’t know how to check if a business vat is registered.


Paying someone who is not registered is quite easy. There are a number of VAT schemes , which can provide a sensible idle ground for some growing businesses. It is important to check that such a scheme is right for your business. However, some new businesses deliberate over whether to undertake voluntary VAT registration as part of their incorporation, even if they do not expect to exceed the threshold in the immediate future.

If you're still weighing up the pros and cons of registering your business for VAT or would like to know more about any aspect of pros and cons of being VAT registered, get in touch with us and find out which is the best option for your business.

You can use accounting software to keep an eye on your turnover and set up an alert to warn you if you’re approaching the VAT threshold. If you have a turnover of more than this over a period of 12 months, you don't have a choice and you’ll have to register.


How do I register?

You can register online, although there are exemptions to this. If you meet one or more of the exemptions you must register by the post.

Do I need to register for VAT ?

So, if your turnover exceeds the VAT threshold of £85,000(UK) or €75,000(Ireland) then you must register for VAT. However, you can also voluntarily choose to register your business because the pros and cons of being VAT registered are quite admirable.

Rían Doyle

I'm a VAT professional with years of experience helping businesses with compliance and reporting. My goal is to simplify VAT calculation and provide valuable insights through my engaging writing style and clear explanations of complex concepts.