How VAT Affects Small Businesses


Value Added Tax is a Europe Union-wide consumer tax that is assessed on the sales of products and services; however, VAT is regulated and administered by the individual European member states through their national tax collection agencies.

Recordkeeping and Self Assessment

The burden for the collection of VAT, keeping of VAT records, calculating VAT tax liability and preparing VAT returns all falls on the business. Where small businesses are concerned, this represents additional work beyond the enterprise’s core business that results in a certain number of hours of lost productivity, or an additional expense in having to hire additional accounting staff.

VAT Registration

Businesses that earn below the annual turnover threshold set in each European Union country do not need to register for, or charge their customers, VAT. This means that small businesses below the threshold are not directly affected by output VAT (the amount of VAT charged to the customer). However, non-registered VAT businesses are not able to recover the VAT they themselves paid to others on business supplies and expenses. No matter what their annual turnover is, small businesses that wish to recover the VAT they paid must first register to collect VAT.


Though its details may differ from other taxes, VAT is, at its core, a tax. When given comparable choices, businesses and consumers tend to buy products and services where they are charged less taxes. For this reason, prevailing VAT tax rates are especially relevant to small businesses in competitive markets.

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