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Mar 19 2024

How to make VAT work for your business

For businesses in the current economic climate, or at any time for that matter, ensuring access to liquid cash is vital. A viable option for retaining cash whilst also minimising cash leakage is by reclaiming the correct amount of Value Added Tax (VAT). However, many owners either aren’t aware of what they’re entitled to reclaim VAT on, or how to go about doing this. Keep reading to get a better idea of how VAT works for your business.


The basics of VAT for businesses

VAT is typically applied to the goods and services supplied by UK businesses. Registration is mandatory for businesses making taxable supplies in excess of £85,000. If a business makes taxable supplies of less than £85,000, then voluntary registration for VAT may be an advantageous option.

Being a VAT registered business comes with a number of responsibilities, which generally includes:

  • Charging VAT on the sales price of any goods and services
  • Keeping records of VAT incurred on the purchases made by the business
  • Keeping an account of any VAT paid on imports
  • Submitting regular VAT returns to HMRC detailing the amount of VAT the business charged to customers and paid to other businesses in the relevant VAT period
  • Paying any VAT owed to HMRC

Advantages and disadvantages for VAT registered businesses

As mentioned above, it will likely be the case that VAT registration is mandatory for your business. By registering you are holding money on behalf of HMRC. This can bring with it opportunities and risk in equal measure depending on your situation. To make smart financial decisions, business owners must be aware of the potential advantages and disadvantages of being VAT registered (even if it’s mandatory).

Pros of VAT registration

Firstly, being VAT registered can be beneficial for businesses that have a high level of purchases from suppliers on a regular basis. If the supplier charges VAT, this is a cost that can be claimed back against the VAT your business charges on its sales. Usually, the total vatable sales of your business would exceed the amount you paid suppliers in the same period and so you would owe HMRC. Of course, you may have multiple suppliers, some of which are VAT registered and some which aren’t.

Another positive is that VAT registration can incentivise other businesses to work with you. This is because it gives the impression that you’re a large professional company with a big turnover.

Cons of VAT registration

The most immediate negative in VAT registration is that the tax must be charged on your products and services. Either the business or its customers will feel the effect of this, resulting in tighter margins or higher prices respectively. For small businesses especially, these drawbacks can pose a significant risk, particularly when you operate in the B2C market (business to consumer). Furthermore, the responsibilities that come with VAT registration can be a big drain on resources. Although this problem can be solved with the help of a qualified chartered accountant that specialises in VAT regulations.

Advice for making the most of VAT

Many of the opportunities for reclaiming VAT come through the sale and purchase of goods and services. As such, it’s recommended that owners focus their attention on invoicing and the procedures they have in place for these transactions. This should be alongside making sure that certain actions are timed to produce the results required by the business. Bear in mind that the standard VAT return period is usually three months, although could be monthly or annually.

Unless your company is extremely small, trying to keep on top of accounting for VAT can be tricky and you might miss out on valuable opportunities to reduce running costs as a result. VAT submissions need to be made under the Making Tax Digital regime and these requirements are ideally met by using Xero Accounting Software. Jan McDermott Chartered Accountants are VAT specialists with hands-on experience implementing short and long term strategies for reclaiming VAT and managing your ongoing duties.



Making VAT work for your business is an ongoing task that requires constant monitoring. As the company grows, it can simply be untenable to maintain the potential benefits without expert help. Jan McDermott Chartered Accountants provides tax accounting services that seek to improve cashflow. As a chartered accountant for small business support based in the Wirral, we like to have a close working relationship with the local businesses. Get in touch to chat about how we can help.