New to claiming back VAT on expenses as a sole trader/self employed - advice needed

icarus_69

I mostly work as an employee, but in the last tax year I made around £1800 from self-employed work on the side. I paid the tax I was due HMRC from that in time for the Jan 2024 deadline.

I see this self-employed work continuing and potentially growing (but not by much). Something I haven't done up to now is claim any VAT back on business-related expenses, but this is something I want to do going forward.

Something I am soon going to be purchasing is a new computer (more specifically, individual parts of a computer as I'm building it myself due to having specific requirements). This is going to act as a storage server for a lot of the self-employed work I do, which often revolves around using and editing audio files.

While this home server/NAS/PC I'm building will allow me to continue and expand on my self-employed work, I feel it will inevitably also be used for personal media and data storage (for example, my own music library, films, etc). I've actually already purchased most of the parts, but still have a few more bits to get before I can build it. All purchases have been made in the current tax year 23/24, though I haven't applied for my own VAT number yet.

Is this something I could feasibly claim VAT back on? Since my income from self-employed work is low, I'm using the Cash Basis system. I am very new to this so any advice is appreciated.

DullGreyGuy

To be able to recover VAT you must be VAT registered and so charge your clients 20% VAT.

Who are your customers? Are they typically VAT registered companies? Will your customers be happy paying 20% more or will you have to discount your prices.

Obviously most people run a business to be profitable so the VAT recovered will be less than the VAT charged so VAT registration creates a net outflow from the business. If your customers are all overseas or are all VAT registered then they can probably take the VAT as an ontop thing as for the UK customers its just a cashflow consideration. If your customers are typically private individuals etc who aren't VAT registered then you want to wait as long as possible before registering as you'll typically have to cut your prices as the VAT charge is real to them. 

Would the computer be absolutely exclusively for business purposes or more 50/50 for business and personal?

BoGoF

If there is any personal use you cannot claim.

Even if solely business use you would need to retrospectively voluntarily register for VAT and any sales you have made in the retrospective period you would then need to charge VAT on (and going forward).

Grumpy_chap

icarus_69 said:

I mostly work as an employee, but in the last tax year I made around £1800 from self-employed work on the side. I paid the tax I was due HMRC from that in time for the Jan 2024 deadline.

I see this self-employed work continuing and potentially growing (but not by much). Something I haven't done up to now is claim any VAT back on business-related expenses, but this is something I want to do going forward.

Something I am soon going to be purchasing is a new computer (more specifically, individual parts of a computer as I'm building it myself due to having specific requirements). This is going to act as a storage server for a lot of the self-employed work I do, which often revolves around using and editing audio files.

While this home server/NAS/PC I'm building will allow me to continue and expand on my self-employed work, I feel it will inevitably also be used for personal media and data storage (for example, my own music library, films, etc). I've actually already purchased most of the parts, but still have a few more bits to get before I can build it. All purchases have been made in the current tax year 23/24, though I haven't applied for my own VAT number yet.

Is this something I could feasibly claim VAT back on? Since my income from self-employed work is low, I'm using the Cash Basis system. I am very new to this so any advice is appreciated.

You are not yet VAT-registered.
You cannot claim input VAT unless you are VAT-registered.
If you are VAT-registered, you must charge VAT on all sales.  Depending upon your market (consumers, non-VAT-registered businesses or VAT-registered businesses), that can have the effect of making you more expensive.  Who do you sell to?
In the first year, you made £1.8k.  Was that total revenue, or the profit?
What do you expect your sole-trader revenue to grow to?
If the business will remain small, it may be more hassle than it is worth to register for VAT.

Jeremy535897

To dispense with a few misunderstandings, you can claim the business proportion of a computer, so if it is used 80% business, 20% private, you can recover 80% of the VAT. You can also recover VAT on items that you bought for the business up to four years before you register for VAT, so long as you still own them at that point. The business percentage is set at the date of purchase.
If I were you, I would be very reluctant to register for VAT on this sort of turnover, unless all your customers are VAT registered, and you are going to incur a lot of input tax.