Sorry to confuse you, Spring. I have so many possibilities in my head, it is sometimes difficult to simplify but remain correct! It's easier face-to-face, as I can ask questions and narrow down the possibilities more quickly. But do feel free to come back with more details for more detailed/clearer comments
Taking your points in order:
1. You cannot reclaim VAT without being VAT registered.
2. For example, a UK business supplying raw food to a UK supermarket would not charge UK VAT as foodstuffs are generally zero-rated. But it might still pay UK VAT on its purchases of accountancy services, for example.
3. At the start, the UK food supplier will make supplies totalling less than the VAT registration threshold. It can remain unregistered, but it cannot reclaim VAT on purchases of accountants fees. This extra VAT will be a cost for the UK food supplier.
4. But the UK food supplier could voluntarily register for UK VAT. It will be able to reclaim VAT on the accountancy service. But it will still not charge UK VAT on its sales, as these are "zero-rated" anyway (there is a list in UK VAT law and certain foodstuffs are on that list).
5. Once the UK food supplier's sales exceed the VAT registration threshold, it is obliged to register for UK VAT. However, as the UK food supplier's sales are all zero-rated, HMRC might permit the company not to register, if this is desired by all parties (e.g. if it saves the cost of hiring a VAT accountant!).
6. How does this apply to your business? Basically, you are in the same category as the food supplier. All your supplies are probably "zero-rated" (though as exports, rather than as foodstuff!), but you will be paying VAT to your UK supplier.
7. So, without being VAT registered, you cannot reclaim the VAT on your purchases. However, you have the option to register for VAT even before you pass the VAT registration threshold. Once VAT registered, you can start reclaiming VAT on purchases. But you will probably not have to charge VAT to your customer (providing you can prove that the goods were sold to non-EC businesses and removed from the EC).
8. You say you can only make a profit if you reclaim the VAT on purchases. So your project requires the business to VAT register (voluntarily). You will need to consider how much a VAT accountant would cost. Furthermore, if you have other businesses, these might also be caught by the VAT registration (i.e. you might have to charge VAT on any other supplies you make). Your VAT accountant would have to advise you on this.
As I say, it is far easier to discuss face-to-face. Many accountants will sit down and discuss initial requirements with you and only charge for compliance work (i.e. completing VAT returns, bookkeeping, etc.). You can talk to several and seek fee quotes too, if VAT returns are something you would not want to do yourself.
Hope it helps & good luck!
.
