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Sam, Accountant
Category: Tax
Satisfied Customers: 14154
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I trade with a large number of companies who are vat registered.

Customer Question

I trade with a large number of companies who are vat registered. Currently my turnover is below the threshold at 60k per year with around 30k consumables. If I registered for vat voluntarily I believe I could charge more inc vat but work out cheaper for them and make more money. Will I be able to recover the vat I've already paid on consumables by registering and how for back? Will I have to pay vat on the money's already charged to the companies or will that just start for the date of registration?
Submitted: 4 years ago.
Category: Tax
Expert:  Sam replied 4 years ago.

Thanks for your question. I am Sam and I am one of the UK tax experts here on Just Answer.

If you voluntary register now, then you just charge VAT from that date (but I will advise that what you charge in VAT you collect for HMRC but then yes, can deduct VAT you have suffered - but it is NOT cheaper for the businesses you trade with, they pay more - as you add on VAT , but they then pay the whole bill to you, and claim back the VAT they suffer - but they end up the same out of pocket £1 for £1 as they do now!)

Whilst you charge VAT from now, if you register from today (although can backdate the actual registration, but this would mean you then have to collect VAT back to that effective date) you are permitted to claim VAT back on what you have suffered for up to four years - but there are conditions
These are
You can reclaim VAT on goods you bought or imported no more than four years before you were registered for VAT if all the following are true:
•the goods were bought by you as the entity that is now registered for VAT (for example, the individual, business or organisation)
•the goods are for your VAT taxable business purposes, which means they must relate to VAT taxable goods or services that you supply
•the goods are still held by you or they have been used to make other goods you still hold

You can't reclaim VAT on any of these goods:
•goods that you've completely used up before you registered for VAT (such as petrol, electricity or gas)
•goods that you have already sold or supplied before being registered, or have used to make goods you have sold or supplied before being registered
•goods that relate to supplies you make that are exempt from VAT

see link here from HMRC website that clarifies this.

So you will need to weigh up
1) Whether you just register from now, charge VAT from now and AND claim back VAT on goods and services still in your possession and VAT actually suffered from the date of registration OR
2) Backdate the VAT registration date and claim back all the VAT suffered during that time period BUT then have to also make good the VAT you should have charged back to this date also