Sole Traders

Can I Claim Vat back as a Sole Trader?

vat back as a sole trader

The best way to set up a new business is to become a sole trader, as you have total control over the operations, which means you become the sole decision-maker about how to run a business quickly and nicely. 

One of those decisions includes VAT registration and reclaim. A common question to every trader is, do sole traders pay vat? The answer is they are no exceptions, and they are subject to the same VAT registration threshold as any other business. So, can the sole traders claim the VAT back if they are subject to VAT registration? 

This article discusses claiming VAT back if you are a sole trader. Keep reading!

vat back as a sole trader

Who can claim vat back?

One can reclaim VAT if he makes taxable supplies of goods and services, whether a sole trader or a small business. The other way to claim the VAT back is “qualifying activities” – these activities are non-taxable. 

Qualifying activities:

  • Transport outside the State of passengers and their accompanying baggage 
  • According to the distance sales rule, supplies of goods are deemed to have taken place in another Member State, provided that the supplier is registered for VAT in that other Member State. 
  • Certain financial and insurance services are supplied outside the EU. 
  • Goods or services supplied outside the State that would be taxable if made in the State. 

You may not claim the VAT back on goods or services used to avoid tax on supplies or for your non-business activities. However, you can reclaim the VAT for your taxable supplies if the cost relates to both taxable and other activities. So, who cannot reclaim VAT? 

What can you reclaim as a sole trader? 

You can reclaim the paid VAT as a sole trader if you purchase goods or services for business use. But what if you used your purchase or service partly for business and personal use? In such cases, you can claim back the proportion of the VAT that relates to taxable supplies made by your business. 

Let us take an example and understand it. For instance, you have a mobile phone, and if you use the same mobile contract for personal use and business use, you can reclaim the business usage of the VAT on the purchase price of the mobile or the contract. 

Things you cannot reclaim back as a sole trader:

  • Products and services that are only for personal use 
  • Entertainment cost of your business 
  • Passenger motor vehicles (excludes qualifying vehicles) 
  • The goods and services used by your business to make exempt supplies 
  • Petrol (otherwise than as stock-in-trade)

Can you be VAT registered as a sole trader?

You are required to register for VAT if you are earning above the VAT threshold, irrespective of your business structure. And as a sole trader, if you think your business still needs to be there, you can voluntarily register for VAT to avail of benefits. 

The VAT threshold for the 2022-23 tax year is £85,000. 

vat back as a sole trader

Benefits of VAT registration 

One can get the following benefits if they have a VAT registration: 

  • You can reclaim VAT refunds
  • One can reclaim the VAT from past 
  • Opportunity to open new business avenues 
  • You do not have to worry 

A word from Pearson McKinsey 

Remember that only a VAT-registered sole trader can reclaim the VAT. You must submit your VAT returns and keep the records supporting your claims. Keeping records and VAT invoices will help you easily claim VAT. 

Get in touch to learn more about VAT reclaims as a sole trader. Our experienced and friendly team is here to help.