Need help with some basic Finance and VAT reclaim questions.

[busiuser75]

Hello,
I have started a small business part-time, and it is no more than a weekend job.
But I may have to get a business bank account and register as a Sole Trader, etc....

I have also purchased Business Insurance.

I may not even gross £12K a year, but it's better than nothing.

My main concern is the amount of VAT I have paid so far and will be paying to keep running.

It is a gardening business, and I have VAT on -

• Van Petrol
• Machine Petrol
• Machine Costs
• Machine Servicing
• Garden Tools
• Office Supplies
• Workwear

Some of the machines cost a lot of money, and I could be looking at over £ 4,000 in VAT on them alone, excluding everything else.

All of the above are previous and current VAT costs that I would like to claim back, if possible, as I have had to pay them out of my own pocket to get this little business up and running.

I am looking to target B2B customers who can reclaim VAT or don't mind paying it, rather than domestic users, and my average domestic invoice would probably be no more than £300 max. So the VAT part would not necessarily be a huge amount for them.

What do you think would be the best way would be for me?

I think I could manage the bookkeeping myself, but would I need to hire an accountant, and if so, how could they benefit me?

Sorry for the basic questions, but the amount of VAT I have paid so far, and have not been able to claim back before even getting established, is worrying.

Thanks

 

[Newchodge]

Hello,
I have started a small business part-time, and it is no more than a weekend job.
But I may have to get a business bank account and register as a Sole Trader, etc....

I have also purchased Business Insurance.

I may not even gross £12K a year, but it's better than nothing.

My main concern is the amount of VAT I have paid so far and will be paying to keep running.

It is a gardening business, and I have VAT on -

• Van Petrol
• Machine Petrol
• Machine Costs
• Machine Servicing
• Garden Tools
• Office Supplies
• Workwear

Some of the machines cost a lot of money, and I could be looking at over £ 4,000 in VAT on them alone, excluding everything else.

All of the above are previous and current VAT costs that I would like to claim back, if possible, as I have had to pay them out of my own pocket to get this little business up and running.

I am looking to target B2B customers who can reclaim VAT or don't mind paying it, rather than domestic users, and my average domestic invoice would probably be no more than £300 max. So the VAT part would not necessarily be a huge amount for them.

What do you think would be the best way would be for me?

I think I could manage the bookkeeping myself, but would I need to hire an accountant, and if so, how could they benefit me?

Sorry for the basic questions, but the amount of VAT I have paid so far, and have not been able to claim back before even getting established, is worrying.

Thanks

Use accounting software from the start, stay as a sole trader and do the books at least once a week, if not every day. Then see how it goes. VAT accounting is not complex or time consuming, provided you keep accurate records. You can reclaim VAT paid out before starting the business, but there are time limits, so I would look to get your first client as quickly as possible, even if that is a family member whose bill comes to £50+VAT, so £60.

 

[busiuser75]

Use accounting software from the start, stay as a sole trader and do the books at least once a week, if not every day. Then see how it goes. VAT accounting is not complex or time consuming, provided you keep accurate records. You can reclaim VAT paid out before starting the business, but there are time limits, so I would look to get your first client as quickly as possible, even if that is a family member whose bill comes to £50+VAT, so £60.

Hello Cyndy,
I have been looking at Sage Free for Sole Traders. Or at least they said it's free.
And most of the machinery I have purchased, as well as the tools, is less than 2 years old.

 

[Newchodge]

Hello Cyndy,
I have been looking at Sage Free for Sole Traders. Or at least they said it's free.
And most of the machinery I have purchased, as well as the tools, is less than 2 years old.

I wouldn't touch Sage with a bargepole! You need something pretty basic and Sage complicates things. Although accountants may see it differently. FreeAgent is supposed to be quite good and comes free with certain bank accounts. Or VT Transactions.

 

[Mark T Jones]

Hello Cyndy,
I have been looking at Sage Free for Sole Traders. Or at least they said it's free.
And most of the machinery I have purchased, as well as the tools, is less than 2 years old.

Did you buy from an 'official' source, with VAT invoices?

 

[Newchodge]

Did you buy from an 'official' source, with VAT invoices?

AND have you still got the invoices?

 

[Paul Kelly ICHYB]

On the basis that you would need to charge VAT, if registered, do a quick calculation to see how better or worse off you will be if you were to charge VAT (this doesn't necessarily mean that you add 20% to your gross selling price or you will get all of your purchase VAT back).

On £12k, my guess is you will be worse off.

 

[Oliver1]

Even though you're technically well below mandatory VAT registration (>£90k turnover), you can register voluntarily. HMRC lets you reclaim VAT on goods you bought before registering, provided they're still in use at the time and were purchased within the last 4 years. The machinery VAT you've already paid could come back once you're on the register. You can also reclaim VAT on services (machine servicing, repairs, etc.) going back 6 months from your registration date.

Regardless of the VAT decision, you'll have to register as self-employed with HMRC (for Self Assessment, you'll need to file each year as a sole trader), and ideally keep a separate business bank account. Neither is complicated but both matter for keeping things clean.

On the accountant question, at this scale you can probably manage the day-to-day yourself. Where outside help is potentially worth it is getting the pre-registration VAT claim right from the beginning and doing the Self Assessment each year.

 

[Paul Kelly ICHYB]

I would like to claim back,

I forgot to mention, you do not 'claim VAT back'. You offset it against your sales VAT, which normally means you pay less to HMRC.

You might gain in the short term i.e. first VAT report, but not in the longer.

 

[Paul Kelly ICHYB]

HMRC lets you reclaim VAT on goods you bought before registering,

No, it doesn't. It allows you to include them in your calculation, which might result in money coming back.

This phrase 'reclaim' is the most misused and misunderstood in small business accounting.

 

[DWS]

No, it doesn't. It allows you to include them in your calculation, which might result in money coming back.

This phrase 'reclaim' is the most misused and misunderstood in small business accounting.

So what are you doing then if you are not ‘reclaiming’ VAT on purchases?
Bearing in mind that the wording for box 4 on a VAT return is ‘VAT reclaimed’
If there is no output tax then you are ‘reclaiming’ the input tax you have paid!

 

[Paul Kelly ICHYB]

You are offsetting VAT collected on sales with VAT paid out on purchases.

The phrase 'reclaim' makes too many people believe they are getting money back from HMRC. Only in rare or unusual circumstances do businesses get money back on a regular basis.

 

[DWS]

You are offsetting VAT collected on sales with VAT paid out on purchases.

The phrase 'reclaim' makes too many people believe they are getting money back from HMRC. Only in rare or unusual circumstances do businesses get money back on a regular basis.

Rare or unusual?? Maybe for your business!
VAT businesses working in the Construction Industry ??
Have you never heard of Domestic Reverse Charge? Some of my clients ‘reclaim’ on average £15k per quarter.
Others who carry out either zero rated or reduce rated works also ‘reclaim’ VAT.

 

[Paul Kelly ICHYB]

I had a business that reclaimed VAT, but a vast majority of businesses (in my estimation) will be paying something to HMRC.

 

[DWS]

I had a business that reclaimed VAT, but a vast majority of businesses (in my estimation) will be paying something to HMRC.

I wouldn’t disagree that a majority pay VAT but those that don’t are not ‘rare or unusual’
The Construction Industry makes up a fair part of the economy and ‘reclaims’ of VAT are very common!
You need to consider all businesses in all sectors not just your little bubble.

 

[DontAsk]

So what are you doing then if you are not ‘reclaiming’ VAT on purchases?
Bearing in mind that the wording for box 4 on a VAT return is ‘VAT reclaimed’
If there is no output tax then you are ‘reclaiming’ the input tax you have paid!

A "reclaim" is what the government call it https://www.gov.uk/charge-reclaim-record-vat/reclaim-vat-business-expenses

You can get a "refund" after errors https://www.gov.uk/hmrc-internal-manuals/vat-refunds-manual

So reclaim and refund are the recognised terminology.

To the OP will you have much in the way of VATable supplies for your gardening business? If not you will have little to reclaim against the VAT you collect from customers and the impact on your prices will approach the full 20% VAT charge.

 

[Newchodge]

A "reclaim" is what the government call it https://www.gov.uk/charge-reclaim-record-vat/reclaim-vat-business-expenses

You can get a "refund" after errors https://www.gov.uk/hmrc-internal-manuals/vat-refunds-manual

So reclaim and refund are the recognised terminology.

To the OP will you have much in the way of VATable supplies for your gardening business? If not you will have little to reclaim against the VAT you collect from customers and the impact on your prices will approach the full 20% VAT charge.

I think the OP indicated he is looking at B2B, and many of his clients will be able to reclaim the VAT he will charge.

 

[UK Contractor Accountant]

I have been looking at Sage Free for Sole Traders. Or at least they said it's free.

Wont be free for vat registered sole traders!!

Start​

For VAT-registered sole traders or small businesses just getting started. Now including payroll and Sage Copilot.
1 user
Productivity assistant included

3 months FREE, then £18 per month.
You save £54

 

[busiuser75]

I forgot to mention, you do not 'claim VAT back'. You offset it against your sales VAT, which normally means you pay less to HMRC.

You might gain in the short term i.e. first VAT report, but not in the longer.

Hi Paul,
I probably have about £6K worth of pre registration VAT from the past 2 years.
£2000 on one bit of machinery alone.

So they will not refund the money?

1. I would still have to charge my customers VAT on my services.
2. HMRC would not ask for the sum of VAT I collect based on what they owe me.

It would essentially be VAT relief for me.

 

[Paul Kelly ICHYB]

Taken from HMRC:

You can reclaim VAT paid on goods or services bought before you registered for VAT if you bought them within:

4 years for goods you still have or goods that were used to make other goods you still have
6 months for services
You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply.


Assuming you meet the above, you could get some VAT back on the first return, however, remember, you will have to start charging VAT on relevant product/service sales.

Based on your £12k t/o, you would probably get a chunk back.

As with most things, we may not have the full picture here, so, seeking specific, personal advice is always the best solution. There are some great accountants on here, several of which have participated in the topic.

 

[busiuser75]

Hi, that's my next question about hiring an accountant?
What are some of things I need to be asking for a small starter like myself?
And what would I be looking to pay for advice?

I need to find someone who can help me price my work and manage my finances.
There are plenty around in my area, but I don't know if they would be suited to someone as small as me.

Thanks

 

[Daybooks]

The choice of whether to VAT register when not compulsory is really one of doing the maths. Does the loss of income from domestic customers as a result of being VAT registered outweigh the loss of recoverable VAT on your purchases by not being registered? The economics of pricing, supply and demand.

I would like to think the benefits of using an accountant would include compliance, help in understanding your business from its profitability and cash flow perspectives and planning including for taxes, for starters.

Many will encourage you to use online accounting systems as their stock answer to everything. Others will give you the tools to make informed decisions. Choose well.

 

[DWS]

Hi Paul,
I probably have about £6K worth of pre registration VAT from the past 2 years.
£2000 on one bit of machinery alone.

So they will not refund the money?

1. I would still have to charge my customers VAT on my services.
2. HMRC would not ask for the sum of VAT I collect based on what they owe me.

It would essentially be VAT relief for me.

If you are looking at claiming £6k in pre registration VAT that would mean that you have £36k in assets/goods and also some services that you still hold at the time you would register for VAT, but you are still not registered as a business, is this correct?

 

[MyAccountantOnline]

Hello,
I have started a small business part-time, and it is no more than a weekend job.
But I may have to get a business bank account and register as a Sole Trader, etc....

I have also purchased Business Insurance.

I may not even gross £12K a year, but it's better than nothing.

My main concern is the amount of VAT I have paid so far and will be paying to keep running.

It is a gardening business, and I have VAT on -

• Van Petrol
• Machine Petrol
• Machine Costs
• Machine Servicing
• Garden Tools
• Office Supplies
• Workwear

Some of the machines cost a lot of money, and I could be looking at over £ 4,000 in VAT on them alone, excluding everything else.

All of the above are previous and current VAT costs that I would like to claim back, if possible, as I have had to pay them out of my own pocket to get this little business up and running.

I am looking to target B2B customers who can reclaim VAT or don't mind paying it, rather than domestic users, and my average domestic invoice would probably be no more than £300 max. So the VAT part would not necessarily be a huge amount for them.

What do you think would be the best way would be for me?

I think I could manage the bookkeeping myself, but would I need to hire an accountant, and if so, how could they benefit me?

Sorry for the basic questions, but the amount of VAT I have paid so far, and have not been able to claim back before even getting established, is worrying.

Thanks

Firstly, congratulations on getting your business up and running. It sounds like you've already made a good start by getting insurance and thinking ahead about your bookkeeping and tax position.

My advice - the best time to engage an accountant is right at the beginning of a business, rather than waiting until problems arise or the first tax return becomes due. An accountant can help ensure the business is structured correctly from day one, advise on VAT registration, explain what expenses can be claimed, and potentially save you significantly more than their fees through proper tax planning.

From what you've described, VAT is likely to be the key consideration. As a sole trader, you do not have to register for VAT until your taxable turnover exceeds the registration threshold, but voluntary VAT registration may well be worthwhile.

Depending on the circumstances and the documentation available, it may be possible to recover VAT on certain pre-registration purchases and business assets acquired before VAT registration.

Before making any decision on VAT registration, I do strongly recommend getting some proper specific advice from an accountant.

In terms of bookkeeping, many sole traders successfully maintain their own records using accounting software. An accountant can review the records periodically, prepare annual accounts and tax returns, advise on VAT, ensure you're claiming all allowable expenses, and help avoid costly mistakes.

If you are considering bookkeeping software, I'd opt for something which is Making Tax Digital (MTD) compatible from the outset. Even if your business is relatively small at the moment, having software that can handle digital record-keeping and future HMRC filing requirements will save time and disruption later on if your business grows or your reporting obligations change.

 

[MyAccountantOnline]

I wouldn't touch Sage with a bargepole! You need something pretty basic and Sage complicates things. Although accountants may see it differently. ....

This one doesn't

 

[MyAccountantOnline]

Hi, that's my next question about hiring an accountant?
What are some of things I need to be asking for a small starter like myself?
And what would I be looking to pay for advice?

I need to find someone who can help me price my work and manage my finances.
There are plenty around in my area, but I don't know if they would be suited to someone as small as me.

Thanks

Don't worry about your business being too small - lots of accountants like myself work with sole traders and start-ups.

Some good questions to ask include -

• Do you work with sole traders and small businesses?
• What qualifications and experience do you have?
• Who will I deal with in the practice?
• Can you advise on whether VAT registration will be beneficial for me?
• Can you help with reclaiming VAT on pre-registration purchases?
• What bookkeeping software do you recommend, and is it Making Tax Digital compliant?
• What's included in your fees, and are there any additional charges?

An accountant can help you understand your costs, profitability and tax obligations. While they won't necessarily tell you what to charge, they can help you work out your costs so you know the minimum you need to charge to make a profit.

You also have the choice of using a local accountant for face-to-face meetings or an online accountant. I may be slightly biased, but online firms can often pass on savings through lower fees while still providing the same advice and support.

Fees will vary significantly ultimately depending on what services you want, the level of support you want and if you keep your own records how accurate they are. My suggestion - dont focus solely on the fee. An accountant who saves you tax, helps you avoid mistakes, answers questions promptly, and gives proactive advice can easily be worth more than the difference between the cheapest and most expensive quote.

 

[JamesUniform]

Hello,
I have started a small business part-time, and it is no more than a weekend job.
But I may have to get a business bank account and register as a Sole Trader, etc....

I have also purchased Business Insurance.

I may not even gross £12K a year, but it's better than nothing.

My main concern is the amount of VAT I have paid so far and will be paying to keep running.

It is a gardening business, and I have VAT on -

• Van Petrol
• Machine Petrol
• Machine Costs
• Machine Servicing
• Garden Tools
• Office Supplies
• Workwear

Some of the machines cost a lot of money, and I could be looking at over £ 4,000 in VAT on them alone, excluding everything else.

All of the above are previous and current VAT costs that I would like to claim back, if possible, as I have had to pay them out of my own pocket to get this little business up and running.

I am looking to target B2B customers who can reclaim VAT or don't mind paying it, rather than domestic users, and my average domestic invoice would probably be no more than £300 max. So the VAT part would not necessarily be a huge amount for them.

What do you think would be the best way would be for me?

I think I could manage the bookkeeping myself, but would I need to hire an accountant, and if so, how could they benefit me?

Sorry for the basic questions, but the amount of VAT I have paid so far, and have not been able to claim back before even getting established, is worrying.

Thanks

Hello,
I have started a small business part-time, and it is no more than a weekend job.
But I may have to get a business bank account and register as a Sole Trader, etc....

I have also purchased Business Insurance.

I may not even gross £12K a year, but it's better than nothing.

My main concern is the amount of VAT I have paid so far and will be paying to keep running.

It is a gardening business, and I have VAT on -

• Van Petrol
• Machine Petrol
• Machine Costs
• Machine Servicing
• Garden Tools
• Office Supplies
• Workwear

Some of the machines cost a lot of money, and I could be looking at over £ 4,000 in VAT on them alone, excluding everything else.

All of the above are previous and current VAT costs that I would like to claim back, if possible, as I have had to pay them out of my own pocket to get this little business up and running.

I am looking to target B2B customers who can reclaim VAT or don't mind paying it, rather than domestic users, and my average domestic invoice would probably be no more than £300 max. So the VAT part would not necessarily be a huge amount for them.

What do you think would be the best way would be for me?

I think I could manage the bookkeeping myself, but would I need to hire an accountant, and if so, how could they benefit me?

Sorry for the basic questions, but the amount of VAT I have paid so far, and have not been able to claim back before even getting established, is worrying.

Thanks

The bit I would get tidy now is the evidence, before worrying too much about software.

For every machine, tool, fuel bill, workwear item or service cost, keep the actual supplier VAT invoice or receipt and record the same few details somewhere simple:

supplier, invoice/receipt date, what it was for, gross amount, VAT amount if shown, how much was business use, and whether you still have the item.

If you later register for VAT, those records are what make the conversation with an accountant much easier. If you only have bank transactions or card statements, it gets messier because those do not prove the VAT detail on their own.

I would also separate "can I include this in the business accounts" from "can I include VAT on this in a VAT calculation". They are related but not the same question.

At your size I would probably pay an accountant for a one-off setup/VAT registration conversation rather than hand over all bookkeeping from day one. Go in with a list of the big purchases and the invoices you actually have, then ask what is worth including and what is not.

 

[DontAsk]

At your size I would probably pay an accountant for a one-off setup/VAT registration conversation rather than hand over all bookkeeping from day one. Go in with a list of the big purchases and the invoices you actually have, then ask what is worth including and what is not.

Why?

It's so easy to do yourself. The time limits have been explained above. Everything that is allowable is worth including as they will all reduce the initial VAT bill, or increase the refund.