Tax

What are the disadvantages of VAT registration?

By

Chris Andreou

What are the disadvantages of VAT registration? guide

Contents

The drawbacks of VAT registration are:

  • Administrative burden. As a VAT-registered business, there are VAT rules and record keeping requirements you'll need to comply with.
  • It makes your goods or services seem more expensive. Charging VAT can make your goods and services more expensive-and therefore less appealing, particularly if your customers or clients are not VAT-registered business, or are end consumers who aren't able to reclaim VAT.
  • You may be faced with 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. This can create cash flow issues if you're unprepared for an unexpected VAT bill.

The drawbacks of VAT registration are:

  • Administrative burden. As a VAT-registered business, there are VAT rules and record keeping requirements you'll need to comply with.
  • It makes your goods or services seem more expensive. Charging VAT can make your goods and services more expensive—and therefore less appealing, particularly if your customers or clients are not VAT-registered business, or are end consumers who aren't able to reclaim VAT.  
  • You may be faced with 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. This can create cash flow issues if you're unprepared for an unexpected VAT bill.

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