VAT is usually loaded on the price of a product or service. A business should, therefore, experience a neutral effect from this. It is expected to be experienced by the end user of the product or service. However, there’s some effect that businesses can feel.
Business to business VAT affects all businesses in several ways. When starting your business, it is advisable to register for VAT. Firms that have registered for VAT are entitled to reclaim VAT that they have been charged on goods and services.
The principle is that the VAT you pay and the VAT you charge do balance, therefore, any difference is paid through VAT tax return or claiming back the money the government owes you. Before reclaiming your cash, it is important to have knowledge in on VAT reclaim.
How Does Business to Business VAT Work?
Once you have registered for VAT, you are required to add VAT to the products and services that are VAT taxable. Your VAT number must be displayed on invoices and receipts. In addition, you will have to file VAT returns regularly.
When filing for your VAT return, you will declare your purchases and sales and the VAT you have charged for your products and services.
The difference between the two amounts will help determine the VAT you owe the state and the amount you can reclaim. It is important to note that you can reclaim VAT imposed on purchases done for business purposes.
Businesses are not allowed to recover VAT from anyone else other than their employees. Most times, firms wrongly believe they can claim VAT on entertainment or meals for suppliers or customers, which is impossible.
Businesses incur huge costs when entertaining their customers and suppliers. Companies ought to be cautious not to reclaim the Vat on money spent on entertainment as it could lead to heavy penalties.
How it Affects Business
Registering for VAT adds an authoritative feel to your business. Research shows that people trust VAT registered businesses more. Consequently, VAT plays a major role in promoting businesses. It helps in raising the goodwill of your business.
Increased brand trust helps you increase your sales and profits. This is because most people buy from brands they like and trust. This also helps in the longevity of your business.
Business to business VAT means that all your clients have VAT registered businesses. So, the VAT they pay you for products and services is usually reclaimable. This means that other businesses may not be concerned with the VAT they pay you since they can claim back a part or all of it.
In conclusion, business to business VAT has more pros than cons. All businesses should strive to register for VAT. They are assured of claiming back the money they spend on VAT. Learning how to reclaim money spent on VAT is essential for a business.