1. Osome Blog UK
  2. The Pros and Cons of Registering my E-commerce Company for VAT

Author Melissa YeoMelissa Yeo

4 min read
E-commerce

The Pros and Cons of Registering my E-commerce Company for VAT

The Pros and Cons of Registering my E-commerce Company for VAT

If you’ve just set up your own e-commerce company, congratulations! Now, you can focus on other aspects of the business and improve your bottom line. Did you know that the registration of Value Added Tax (VAT) can also affect your business?

While most business owners have the misconception that VAT registration is tedious and an additional bill to look after, VAT can also be advantageous to your business.

Read on to find out whether VAT is the right option for you.

Do I have to register for VAT?

It is compulsory for you to register for VAT if your e-commerce business's taxable turnover is more than £85,000 based on a 12-month rolling calendar.

If you are based outside the United Kingdom (UK) but are selling products in the UK or to UK customers, you are also required to register for VAT.

If I’m Not Required To Register for VAT, Should I Still Do It?

Even if your e-commerce business is not required to register for VAT, you may still wish to do so. Voluntary VAT registration comes with its own advantages and disadvantages, which we will explain below to help you make a well-informed decision:

Advantages of Voluntary VAT Registration

  1. Credibility

Registering your business for VAT gives an impression of being more credible and established. By doing so, your customers may think that your business is flourishing and way beyond the start-up phase.

Additionally, having your VAT number reflected on your website and invoices will lead potential investors, suppliers and customers to believe that your company is of a larger scale and profitable with a turnover of more than £85,000, which could lead to more business opportunities.

  1. Concentrate on Business Growth

Even if your e-commerce business is at its infancy, you may be thinking of expanding the scale of business. In this scenario, it may be wise to complete your VAT registration so you can concentrate on business expansion without having to worry about hitting the £85,000 threshold.

Once the VAT registration and the accompanying accounting procedures are out of the way, you can focus all your energy on the core business.

  1. VAT can be Backdated

If you volunteer for VAT registration, you are allowed to backdate your registration by up to 4 years. In effect, this means the business can then claim back VAT incurred up to eight years ago on goods still on hand on its first VAT return: by backdating the registration four years and then being able to go back another four years prior to the registration date.  If you do so, take note that you will have to provide proof to HM Revenue and Customs (HMRC).

  1. Application and Reclamation of VAT

For the sale of almost any of your product or service, you need to apply VAT. Similarly, for most products or services bought from other businesses, you can also reclaim VAT.

Disadvantages of Voluntary VAT Registration

  1. Stringent admin duties, such as handling VAT returns

While voluntary VAT registration comes with perks, a downside would be having to upkeep strict admin duties, especially when it comes to documenting and recording all VAT receipts and invoices. Additionally, you will also have to file VAT returns every three months. These paperwork are compulsory for all VAT registered companies.

  1. Some customers and clients may not be VAT registered

If your customers and clients are not VAT registered, they will not be able to claim back VAT on your products and services. In other words, your VAT-imposed products or services may be deemed too costly to these customers and clients.

  1. May potentially incur a hefty bill

If the VAT earned from your products and services sold surpasses the VAT you made on other products and services purchased, HMRC has the capacity to hand your business a substantial bill.

How to Register for VAT

We hope the above gave you a better idea of the pros and cons of registering your e-commerce company for VAT.

If you’ve decided to register for VAT, you can simply do so online, which will take around 20 days to process. Alternatively, you could do so by post via postal service, which takes up to 30 days to process. However, you can only register by post if you are:

  1. An European Union (EU) business distance selling into Northern Ireland
  2. Importing goods worth over £85,000 from an EU country into Northern Ireland
  3. Registering a group of companies with different VAT numbers
  4. Disposing of assets from which you have claimed 8th or 13th Directive refunds on.

Tip

As a general rule, businesses must recover VAT through the VAT return when they are VAT registered in the country where VAT was incurred. If not registered, VAT can be recovered through an EU Refund Claim or 13th Directive procedure (by EU Refund claim we refer to the former 8th Directive). A VAT registration is required when you make taxable supplies in the country.

What Happens after VAT Registration

Once you’re done with registering for VAT, you will have to charge VAT on applicable products and services sold, on both standard rate and reduced rate goods. You are also held responsible for your VAT liability, and should you fail to register when required, HMRC can penalise you and contact the online marketplaces in which you conduct business through. This could possibly lead to your suspension on these platforms and consequentially, the downfall of your e-commerce business.

Grow your Business Without the Stress

We know how stressful it can be to handle a business, but you don’t have to take it all upon yourself.

At Osome, we are always here for you. Work with a dedicated e-commerce accountant. We help you with your filing deadlines, finding reliefs for your company, and arranging documents perfectly.

We also connect directly to all your marketplaces and upload financial statements from there. We then transform them into books, reports, and tax filings. If you sell outside the UK, we help you file VAT there too.

Share this post:
Subscribe

Tips to run your business smarter. Delivered to you monthly.

By clicking, you agree to our Terms & Conditions , Privacy and Data Protection Policy

You might like it

How To Record Donations in Bookkeeping
E-commerce

How To Record Donations in Bookkeeping

The new year is always a good time to give back to society, but how do you keep track of your donations, especially if you make them throughout the year? It's crucial to have a bookkeeping system to track your charitable donations so you don't miss out on a single deduction.

·4 min read
Bitcoin or Ether in Your Balance Sheet? Here's What You Need To Know
E-commerce

Bitcoin or Ether in Your Balance Sheet? Here's What You Need To Know

Cryptocurrency is gaining acceptance worldwide, with the increasing popularity of digital assets such as Ethereum and Bitcoin likely to propel market growth in the coming years. Should these cryptocurrencies be on your balance sheet? Read to find out more.

·8 min read
E-commerce Trends in 2022 That Businesses Need To Know
E-commerce

E-commerce Trends in 2022 That Businesses Need To Know

As an e-commerce business owner, it’s important to keep up with ever evolving trends. As we kickstart the third year of a post-COVID era, here are some e-commerce trends and how your business can remain competitive.

·9 min read
E-commerce Sales Dates in 2022 To Put in Your Calendar
E-commerce

E-commerce Sales Dates in 2022 To Put in Your Calendar

It may be one thing to remember the important dates, but preparing for them is another ball game altogether. Set yourself up for success this year by planning out your sales and marketing initiatives around 2022’s key retail calendar dates.

·12 min read
10 Tips To Help You Get Better At Selling Digital Products
E-commerce

10 Tips To Help You Get Better At Selling Digital Products

Would you pay for something that you can’t actually see or touch? It might seem odd, but you’re probably already doing just that with your mobile plan or paid apps.

·7 min read
Everything UK Amazon Sellers You Need To Know About Fees
E-commerce

Everything UK Amazon Sellers You Need To Know About Fees

If you’re just starting to sell on Amazon, or even if you’re just thinking about it, you may be wondering what Amazon seller fees are. As one of the world's largest marketplaces, Amazon isn’t, predictably, free for businesses.

·5 min read
How Does Amazon FBA Work?
E-commerce

How Does Amazon FBA Work?

Fulfillment by Amazon, or FBA, as it’s often called, allows individuals and businesses to sell products on Amazon without lifting a finger - the platform does everything for you.

·4 min read
10 Steps for E-commerce Businesses To Succeed on Square
E-commerce

10 Steps for E-commerce Businesses To Succeed on Square

With so many opportunities for businesses, the only reason not to get started is because you haven’t got an online store - and Square Online answers that problem for you. Available in the United States, the United Kingdom, Australia and Ireland.

·5 min read
KPIs and Metrics E-commerce Businesses Must Track for Optimizing Their Marketing Efforts
E-commerce

KPIs and Metrics E-commerce Businesses Must Track for Optimizing Their Marketing Efforts

How do you know your business is doing well? Or the new growth tactic you applied a month ago is taking your business in the right direction? The answer is having precise data of all activities of your business proceedings.

·9 min read
When Should I Hire An Accountant For My E-commerce Store in the UK?
E-commerce

When Should I Hire An Accountant For My E-commerce Store in the UK?

The boom in e-commerce is great for business, but does mean more responsibility and demands for business owners. If financial matters are starting to build up, it might be time to get an accountant for your e-commerce store.

·3 min read
Upselling and Cross-Selling Strategies for E-Commerce Stores
E-commerce

Upselling and Cross-Selling Strategies for E-Commerce Stores

We are inundated daily with countless ads throughout our day, both online and offline. As an e-commerce store retailer, one of the challenges that you may face is trying to get your products and message across to prospective customers.

·9 min read
A 2021 Holiday Sales Checklist for E-commerce
E-commerce

A 2021 Holiday Sales Checklist for E-commerce

Although the sales period will mean that your customers’ shopping carts will be busier, this also brings about its own set of challenges for your online business. Follow our holiday season checklist to ensure your business is well equipped for the shopper surge.

·7 min read

Tips to run your business smarter. Delivered to you monthly.

We’re using cookies! What does it mean?