Discussion
If someone is starting a new business and predicted turnover is less than the VAT threshold is it worth considering registering to claim back initially VAT on capital expenditure.
Most businesses require capital purchasing of some sort be it machines transport or whatever as 'tools of the trade'
So say I was spending £40k on assets for the business with the VAT element being £7k in the first Qtr of my Year 1 and my sales turnover only amounts to say £20k in year 1 therefore my VAT inputs exceed outputs in year1 would I be able to reclaim the net £3.5k? In fact would I be able to reclaim the £7k if I had made no sales in Qtr1
It sounds too simple so I guess there is a catch can any experts (EricMc)assist?
Most businesses require capital purchasing of some sort be it machines transport or whatever as 'tools of the trade'
So say I was spending £40k on assets for the business with the VAT element being £7k in the first Qtr of my Year 1 and my sales turnover only amounts to say £20k in year 1 therefore my VAT inputs exceed outputs in year1 would I be able to reclaim the net £3.5k? In fact would I be able to reclaim the £7k if I had made no sales in Qtr1
It sounds too simple so I guess there is a catch can any experts (EricMc)assist?
It can definitely make sense for a lot businesses, the downside is really just that you are then VAT reg'd which brings the extra administration when it could be avoided - Also remember when you first register, you can backdate claims on various (not all) expenditure for I think 6 months, so you could defer registration and still claim the benefits a bit later down the line. The only other thing is will being registered affect your charges/profit - if business to business and your clients are Vat reg'd then it's no biggy.
There are many reasons why businesses might want to register for VAT even though they haven't yet reached the compulsory VAT annual thurnover threshold (£64,000 at the moment).
One, as you obviously realised, is the ability to claim back Input VAT on large capital expenditure.
Secondly, if most (or all ) of your customers are themselves VAT registered, then they will be able to reclaim the VAT you will be charging them on the bills you issue.
If most of your cusytomers are not VAT registered, then they will not be able to reclaim this VAT and that could put you at a competitive disadvantage compared to rival businesses who might not be registered.
The general principle would be that you should seriously consider registering for VAT if most of your customers are VAT registered themselves.
The main reason why people don't register until they have to is because of the hassles of having to complete returns. However, there are a number of special schemes out there which allow smaller traders to operate using simplified record leeping in an effort to ease this burden - prime examples being the Cash Accounting Schemem and the VAT Flat Rate Scheme.
One, as you obviously realised, is the ability to claim back Input VAT on large capital expenditure.
Secondly, if most (or all ) of your customers are themselves VAT registered, then they will be able to reclaim the VAT you will be charging them on the bills you issue.
If most of your cusytomers are not VAT registered, then they will not be able to reclaim this VAT and that could put you at a competitive disadvantage compared to rival businesses who might not be registered.
The general principle would be that you should seriously consider registering for VAT if most of your customers are VAT registered themselves.
The main reason why people don't register until they have to is because of the hassles of having to complete returns. However, there are a number of special schemes out there which allow smaller traders to operate using simplified record leeping in an effort to ease this burden - prime examples being the Cash Accounting Schemem and the VAT Flat Rate Scheme.
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