The journey of putting up your own business can be an exciting experience for every entrepreneur. Every risk and sacrifice you took to start up your business would eventually become so much worth it when you start making a profit out of it. However, there are aspects and requirements that you should be aware of in having a business such as VAT registration.
What is VAT Registration?
VAT or Value Added Tax is the tax collected on the sale of goods or services. It is also applicable to the import of goods and services in several countries. The amount of VAT payment is to be determined following the deduction of input VAT, which is paid by the business upon purchasing goods and services for the business itself. It is recommended that you keep track of your taxes. This is especially if you own the business yourself, being your boss and employee.
Each country has administrative authority for VAT of its own. For example, in the UAE, the Federal Tax Authority is the administrative authority. On the other hand, HM Revenue and Custom manage the UK VAT.
VAT registration is the process of listing your business with the government. as active in sales and production.
Why Do I Have to Register for VAT?
In the UK, companies are required to register for VAT if they have a turnover of over £85,000. The entire value of all taxable sales you create throughout the tax year is your taxable turnover. Sales that are exempted from VAT don’t count towards your taxable turnover. In middle eastern countries such as Oman for example, OMR 35,000 is the mandatory VAT registration threshold. It is possible, however, to apply for a voluntary registration above OMR 19,250. The annual sales for the rolling preceding 12 months are on the threshold basis. Non-resident businesses making taxable supplies in Oman must VAT register. VAT Registration Oman can help you ease the registration process. You can look up other online VAT registration sites to guide you on your registration journey.
You might be asking yourself, aside from it being required, why is this important? Why do I have to bother registering for VAT? There are advantages and disadvantages of being VAT registered. Here are some of them.
Advantages Of Being VAT Registered
- You can reclaim the VAT charged by other businesses for goods and services. This is particularly beneficial if your business purchases a large number of materials for the production of goods as well as services.
- Being VAT Registered makes your business seem larger and indicates that your annual turnover is great. This can help when you are competing with other unregistered businesses.
- If a VAT registered themselves, your business customers can claim back the VAT you charge. This means that there is no net change in the amount they will be paying.
- Your VAT number can be displayed on invoices/websites. This can make your company look more appealing and attractive to potential customers.
Disadvantages Of Being VAT Registered
- Customers that are not VAT registered may be discouraged from purchasing your products or services due to the additional 20% VAT charge, in comparison to availing from a non-VAT registered company.
- Your business needs to file a VAT return every quarter as well as maintain clear records throughout a rolling 12 month period.
If you fail to register for VAT at the proper time, you could be facing and become liable for a late registration penalty. Ignorance is not an acceptable excuse to avoid possible potential penalties. The more the period is prolonged that you failed to register for VAT, the greater the penalty will be. However, a penalty can be mitigated or canceled if you can provide proofs and pieces of evidence that will support your case and prove that there are genuine circumstances that have prevented you from registering on time.
When Should One Register?
In some cases, VAT registration is mandatory for businesses, generally triggered upon reaching a certain revenue threshold. In the UAE, this threshold is when your turnover exceeds or is likely to exceed (in the next 30 days) AED 375,000 in any of the past 12 months. In the UK, the threshold is £85,000.
However, you can also register for VAT on a voluntary basis at any point up until your turnover reaches the mandatory turnover threshold in the UK. The voluntary registration threshold is slightly different in the UAE. Businesses could request a voluntary registration when their turnover or taxable expenses exceeds or likely to exceed AED 187,500 (in the next 30 days) in any of the past 12 months.
How to Register
Most businesses can register for VAT online. This is the easiest way to file VAT returns as well as make payments. To register for VAT, you’ll need to create a VAT online account. Then, you can submit your returns and make payments through this account.
Registering for VAT is a relatively simple process and something you can do by yourself. However, you could also appoint an accountant who will register for VAT and submit your returns on your behalf. To register for VAT, you will be needing to provide a couple of details about your turnover, business activity, including your bank details. The date you register will also be your ‘effective date of registration’. You will need to file returns and pay VAT from that date.
From your registration date, you will need to start raising invoices with a total figure including the sale amount and the VAT amount. You must also include your VAT registration number on your invoice. After that, you will receive a VAT registration certificate as well, but you do not wait for the certificate to arrive before you start charging VAT.
As you can see, VAT registering your business on time is essential. It is unadvised to brush off serious matters such as these because there is a high chance that you will find yourself facing the consequences and repercussions which, as discussed earlier, could be a huge amount of fine depending on how much you prolong it. You should be aware of the processes that should be undertaken because ignorance is not an excuse. Penalties are not to be taken lightly if you want to ensure the success of your business as well as your business’s reputation.