How does VAT affect my small business?

It is a commonly known thing that VAT is +20%, however what does that really mean to small to medium-sized businesses?

Let's look at what VAT actually means for businesses

When a business becomes VAT registered, it must charge a further 20% on all sales, when the invoice is paid that is when VAT is deducted. Businesses must also pay their VAT Return every 3 months to HMRC, before this is paid the business will take away any VAT that is for their suppliers. To put it simply, the majority of VAT goes to the suppliers of the company and from what is left goes to HMRC.

If and when a business pays more VAT to their suppliers as opposed to what they receive from their own clients then the business is eligible to claim this back, which means a VAT registered company will never suffer when it comes to VAT.

For businesses that are not VAT registered, or an end-consumer are not entitled to claim VAT back meaning they are the ones who end up with a hefty cost of VAT.

Will my business suffer if I am not VAT registered?

Well, if your business is turning over more than £85,000 then the choice is not yours - the business must be VAT registered, if your turnover falls below £85,000 then you are able to make the choice yourself however, it is usually recommended for all businesses to be VAT registered as it gives entitlement to claim any VAT back.

What will I need to become VAT registered?

• Turnover

• Business activity

• Bank information

How do I become VAT registered?

Simply visit, the VAT registration page on Gov.uk

If your business is struggling to pay VAT due to a tight cash flow then there are solutions, Businesscomparison.com offers a free VAT comparison service so your business doesn't have to miss out!

Kerry Fawcett