There are benefits to having a VAT registration for your business. We see you gasp in shock and horror, and we get it. Amid the overwhelming administration around registering, accounting, filing and reporting on VAT, it’s sometimes hard to see that being VAT registered has some pros. If you’re toying with the idea of if you should register for VAT for your business, here are some reasons why that’s actually a very good idea.
But first…
Firstly, your business will need a VAT registration when it crosses a certain amount of annual turnover and will have to register for VAT. This is called a VAT threshold. Depending on the country where your business resides, the VAT threshold will differ and you will have to charge VAT on your sales invoices and report and declare valid VAT invoices to your local VAT authority. This is of course if your country has a VAT regime.
If your business sells goods (Although for distance sellers, eCommerce and digital services businesses, the rules are different) or services in a country that has a VAT or GST regime, then you will have to register for VAT in that country once you meet their local VAT threshold. This is called a foreign VAT registration or a non-resident VAT registration.
You thought you were about to read an article about the benefits of being VAT registration, why you should register for vat and having a VAT registration number, and you will. But in order to truly appreciate any benefit, one must first understand the downside.
Ultimately, tax compliance for any successful, growing business is unavoidable. There are some disadvantages, but they are shared with every other company on earth. So, although VAT compliance can be a hindrance, it won’t set you back. But it will feast on your resources.
Maintaining healthy VAT compliance requires extra resources from your business. Many finance departments have full tax teams committed to solely managing a company’s VAT and VAT invoices. So, do small businesses pay VAT? In some cases, you might need to but that would depend on the country you do business in and whether you meet the VAT registration threshold.
For small businesses that need to register for VAT, the resources for VAT compliance are often non-existent and are then outsourced to an accounting service. Ultimately, VAT compliance will cost you eventually in some way, either through employing internal resources or outsourcing it. Fortunately, there are several methods you can use when you’re looking for answers to the question of how to pay less VAT.
That sounds counter-intuitive, doesn’t it? Surely, by registering for VAT, you’re immediately compliant. You are, but VAT isn’t a one-off project – it’s ongoing. Staying compliant requires a deeper knowledge of your own sales categories and your A/P and T&E expense types. Successful VAT audits depend on it, and we’ve done research that shows that 27% of VAT registered companies are at risk of filing non-compliant claims (you can download the domestic VAT case study here)
At the start of your voluntary VAT registration, it can be uncomfortable to alert your customer base that your invoice prices will be going up by 20% (International VAT Rates vary). But most of your customer base is probably VAT registered too and will be able to claim the VAT on your invoice as input VAT against their own output VAT.
Of course, that’s if your sales invoice is VAT compliant and that’s your responsibility to get right for your customer (your VAT registration number, vat breakdown, and full company address need to be featured on the invoice and the correct VAT rate for the service/goods must be charged).
You’ll find that most VAT authorities allow a business to voluntarily register for VAT through following the VAT registration process, before meeting the VAT threshold, and many do. That’s because there are some significant benefits of being VAT registered, which include:
The sooner your business is VAT registered, the sooner you’re able to reclaim VAT and start claiming your input VAT against your output VAT. For a registered business with hefty start-up costs, receiving input VAT refunds/VAT return from the tax authority can be a considerable cash flow lifeline and therefore being able to reclaim VAT is one of the most valuable benefits of being VAT registered.
However, there are risks of over-claiming or claiming VAT on non-claimable expenses as one cannot claim VAT on all expenses. These are pitfalls that companies must watch out for or risk penalties down the line. VAT IT specialises in helping businesses maximise their input VAT returns while ensuring 100% compliance.
Another benefit of being VAT registered is when you have a VAT registered business, it signifies that your business has moved to a level of turnover worthy of governmental watchdogging. But that also means your business is larger, and when it comes to business development, the perception of size and clout matters.
There’s a connotation of permanence when you have a VAT registered business. Adversely, companies without a VAT registration may be perceived as “small fry” or as a company that lacks stability or longevity.
Furthermore, many large corporations and listed companies prefer to work with VAT registered businesses. Subsequently, voluntary VAT registration becomes a question of growth rather than a burden.
Having a foreign VAT registration is critical for anyone that imports their goods to the country where the goods are being sold. For example, for drop shippers, eCommerce businesses and distance sellers selling into Europe, the EU’s VAT One Stop Shop is the answer to smoother compliance and easier customs clearance.
In addition, having a VAT registration allows you to claim the import VAT locally too. This can save a business up to 25% on import costs when structured correctly. For more information on harnessing the opportunities for import VAT refunds (either through foreign vat registrations or via the cross-border 13th Directive), speak to one of our VAT IT Import VAT specialists.
VAT-registered businesses have the opportunity to claim cross-border VAT from over 30 different countries. Foreign T&E and A/P expenses accumulate thousands of Euros worth of refundable VAT.
However, $7 billion of it goes unclaimed every year because companies don’t have the know-how or resources to execute the claim requests successfully across so many different jurisdictions.
VAT IT has helped over 15,000 companies across 160 countries claim back foreign VAT on A/P and T&E expenses. But you have to register for VAT in the country where your business is domiciled to take advantage of these opportunities. When it comes to the bottom line, VAT refunds can be very helpful.
We’ve explored both the disadvantages and advantages of having a VAT registration number and it’s clear to see that it’s neither bad nor good. VAT compliance is an obligation and administrative task that all businesses must master or risk penalties and fines. Like other taxes, indirect tax/VAT simply exists. Like lemons, we try to turn it into lemonade where we can.
Get in touch for help with your VAT refunds today.
5 Top AI-Powered Tax Compliance Tools Tax compliance software has come a long way and what used to mean basic automation now includes machine learning, smarter data processing and tools that can spot problems before they become expensive. The category has a new name: AI-powered tax compliance. For finance and tax teams managing tax […]
SAF-T Reporting Explained: What Businesses Need to Submit for VAT Compliance Tax authorities across Europe are moving away from manual, sample-based audits. In their place, a growing number of jurisdictions now require businesses to submit structured accounting and VAT data in a standardised format that can be checked automatically, at scale, and in far greater […]
The DGFiP Has Spoken: France’s September e-Invoicing Deadline Stands. There has been speculation in recent weeks about whether France’s mandatory e-Invoicing deadline would be pushed back following a cyberattack on the DGFiP, France’s Public Finances Directorate. The French government has now responded directly, and the answer is unambiguous: no postponement. David Amiel, Minister for […]
How to Deregister for VAT and What to Consider First A drop in turnover, a change of business model, or the closure of a cross-border sales channel can all result in a company being registered for a tax it no longer needs to charge. Cancelling that registration is rarely as simple as writing to the […]
EDI vs E-Invoicing: What’s the Difference and Which Does Your Business Need? Both EDI and e-Invoicing move structured transactional data electronically between businesses. On the surface they look similar. In practice they serve different purposes, operate through different mechanisms, and carry very different compliance implications depending on where your business operates. Understanding the distinction is […]
Backdating VAT Registration: What Businesses Need to Know VAT registration has a deadline. Miss it, and the tax authority does not simply move the start date forward to when you applied. In most cases, it moves it back to when you should have registered in the first place. That gap between when you were liable […]
This webinar explains how US businesses can identify and recover foreign VAT, breaking down key concepts like reciprocity and showing where refund opportunities are often missed.
