Unsure of whether I would earn enough as sole trader

Laurajo_2

If you make a loss you can offset it against your employment income and will get a refund.

Seriously, I'd avoid registering for vat - if the people you work for aren't vat registered (and most business with a turnover under 77k won't be) your prices won't be as competitive, or you'll have to swallow 20 percent of every gross fee you charge. The potential for fines and penalties for getting wrong are fairly punitive, and you open yourself up to vat inspections etc.

As you say yourself, you're new to this, and I really wouldn't recommend going down that route unless you have some professional advice. There are rules on what you can and can't claim vat back on and it can get very complex.

arvindsond

Hi guys, thanks for all the replies, starting to make sense. I'm not trying to fiddle anything, I'm just a newbie at starting a business but at the same time didn't want to drop loads on initial kit hence why I was enquiring about VAT discount. Of course I have many clients and my turnover could be potentially quite high annually, but you always need to consider worst case scenarios!

Percy1983

I made a loss in my first yeah due to equipment, in may case rather than going for a refund I carried it forward and cleared it in the second year.

In the third year I have upgraded loads of equipment so will make a loss again which will easily be covered in year 4.

As for VAT, in short if you make more money than you spend (which a business should) you will end up paying money to the VAT man, not a big problem as you are charging for it.

But if you have customers which aren't businesses or non VAT registered small businesses then you will be costing them more.

ie I sell an item for £100

If I am not VAT registered it costs them:
£100 to business
£100 to public.

If I am VAT registered it costs them:
£100 to business (they claim the £20 back)
£120 to public (they can't claim VAT back)

So if a significant part of you business is dealing with none VAT registered entities it could actually hurt your business.

martindow

im-lost wrote: »

But you should be quids in, well a bit better off as you still charge your customers vat at 20% but only pay over a portion of it, which in most cases works out better than if you reclaimed on your expenses.

You may not be quids in if you are VAT registered and have private customers as you may price yourself out of the market charging 20% more than your competitors.