After always working for a salary, I am looking at my options of going freelance and self employed.

Ideally I would be looking to reduce my working time which would mean my income would be below the VAT registration threshold.

I have looked at the online advice regarding VAT and it’s as clear as mud.

Is it possible to claim back VAT if you are not VAT registered? Is it offset against your annual tax bill?

Can’t reclaim VAT if you’re not VAT registered. Whether you should register or not depends on the amount of vatable goods you use to run your business, and whether your customers are VAT registered. If they are, and can reclaim vat you charge, you might well be better to be vat registered. If they are not, or you’re selling to the public, often best not to be vat registered. Also depends on the gross profit ratio of you business – ie are you buying lots of goods with vat on them to run your business.
What are you doing?

Regards
Colin

No claiming VAT back if no registration. Mrs S has supplied this information being one of HM Inspectors.

No claiming VAT back if no registration. Mrs S has supplied this information being one of HM Inspectors.

That doesn’t seem fair!!!

What are you doing?

Working as a specialist consultant. All of my customers would be VAT registered. I won’t be buying goods to sell. The VAT would be on laptops and other basic equipment. Sound’s like it’s not worth registering for a relatively small amount.

I will be speaking to an accountant before I do anything anyway, just trying to make sense of it.

Yes, probably best not registering if you’ve no vatable inputs. You will be able to set the whole amount of the laptops etc including the vat on them as a cost to the business and thus reduce your profit and save a bit on income tax – as opposed to only claiming the net amount before vat if you were vat registered (and had already claimed it back). Assumes the tax man will allow the cost of these as wholly allowable as a business expense, and that you make some taxable income, of course.
Colin

This is a fairly good explanation of the basics.

https://www.freeagent.com/guides/vat/registering/

You will be able to set the whole amount of the laptops etc including the vat on them as a cost to the business and thus reduce your profit and save a bit on income tax –

So if I spend £500 on a laptop, including £100 VAT, I deduct that as an expense from my income and pay £100 (20% of £500) less tax at the end of the year?

Not quite.
VAT registered – cost of laptop £500 plus £100 vat. £100 vat reclaimed, net cost to business £500 so £500 set against income as an expense, tax saved 20% of £500 = £100
Non VAT registered – cost of laptop £500 +£100 vat. No vat reclaimed so net cost to business £600. Then £600 set against income as an expense, tax saved £120. So you save the income tax on the vat amount at your highest marginal rate – in this instance £20 if you are at 20% income tax, £40 if you are at 40%.

Also look at flat rate VAT though. I don’t have many stable inputs – maybe a laptop every 3 years – and not much in way of costs. Customer(s) are already VAT registered so they don’t care.

Charge VAT at standard rate, can’t really reclaim under £2k or so, but FRV is around 16% IIRC (though think this may change shortly).

Flat rate scheme worth looking at although the rules are changing in 17/18 tax year. With the first year 1% discount though, it may still be worth it.