We are sometimes asked about claiming VAT back on expenses, specifically is it worth registering for VAT in order to claim VAT back on expenses?
The Basics of Expenses with VAT
You can only claim VAT back on expenses if you are VAT registered.
If you are not VAT registered then you cannot claim VAT back on expenses, but you simply claim the whole expense including VAT in your expenses for Tax.
- Eg, you are not vat registered and spend £500+vat=£600 on a website
- You cannot claim the £100 VAT back
- You claim the full £600 including VAT against Tax (Income Tax under Self Assessment or Corporation Tax)
Voluntary Registration to Reclaim Expenses
Sometimes we’ve been asked by Yoga Teachers about registering voluntarily for VAT – you can do this where your turnover is below the threshold.
The temptation arises to get VAT back on expenses, eg hiring a venue for a workshop, or studio rent, however it means you have to charge VAT on all your income which outweighs the saving; unless you put your prices up and risk losing business.
So, yes you can, but it is not worthwhile. It is better to absorb the VAT on your expenses if your turnover is below the VAT threshold. In a retail (business to consumer) business like Yoga, Voluntary VAT registration seldom makes sense.