Question re Indirect Tax - Voluntary Registration

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rafuk
rafuk Registered Posts: 8 Regular contributor ⭐
in AAT Level 3 (Level 6 in Scotland)
Hi guys

I just read in my Osbourn's book that a business with annual sales below below VAT threshold may voluntarily register if there is an advantage gained from doing so, for example selling zero-rated goods (no VAT charged) and being able to claim input VAT pain on expenses related to those sales.

My question is why is it only beneficial for zero-rated goods. Isnt it also beneficial if the business sells normal rated goods?

Thanks!

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  • CHES&STAFF01
    CHES&STAFF01 Registered Posts: 107 Dedicated contributor 🦉
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    Hi Rafuk,

    As you know, when you purchase goods, you can claim back the VAT you paid when buying them. Then, when you sell them, you must pay the VAT is charged back to HMRC.

    Therefore, when you are selling zero-rated goods, you can claim back the VAT on your purchase, but you don't have to pay any back, because you are not charging your customers.

    If you buy and sell standard rated goods, the VAT at which you sell to customers will normally be higher than when you bought the goods (marking up the price) and so the amount you would owe would be higher than the amount you would be able to claim.

    There can be advantages if you are selling low rate goods (5%) but it is usually not beneficial if you are selling standard rated goods.

    Hope that helps!

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