VAT registration on zero-rated food sales

Can I benefit from registering for VAT with a low turnover business selling 95% zero rated goods?

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I run a small buisness making chutneys, sauces and condiments, most of my sales are 0 rated for VAT, with only around 5% of sales non-zero. Turnover is currently below the threshold but most of my sales are B2B and I'd like to give off a more professional image by being VAT registered.

Most of my purchasing costs are packaging materials and shipping which I'm paying VAT on (As well as initial setup costs with fitting a kitchen out, catering equipment etc) so I'd also like to try to benefit from VAT registration. (side question here, if the actual goods are zero rated and I put the price up to cover P&P, state 'free P&P' then claim VAT back on the P&P costs I've paid would this be okay? What I've read suggests it would be fine but just want to double check)

As the costs of jars, equipment etc are directly involved with meeting the needs of the buisness I believe that it's fine to claim for VAT, however as I'm going to be paying very little VAT can I still claim refunds on what will be a much higher sum than what I generate through my sales?

Replies (4)

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By Paul Crowley
16th Apr 2024 12:17

This is getting to be a standard reply, but consider two things.
Firstly getting an accountant and run the kind of details past him, the kind of details that you might not want to put on a public forum

Secondly consider backdating up to four years. I have a beekeeper that is in a similar position. He registered from start of trading to recover all equipment and ongoing input VAT.
Backdating is a bit more detailed than just registering on line.

Thanks (3)
Replying to Paul Crowley:
By PostItNote
16th Apr 2024 12:31

Thank you, I appreciate that it's probably a common question, I did run a number of searches but didn't do well finding relevant answers so I'm grateful you took the time to answer.

Thanks (0)
Replying to PostItNote:
By FactChecker
16th Apr 2024 14:31

Fully endorse Paul's recommendation to get yourself a paid adviser who can listen to all the details of your history & plans before giving you sensible advice & options.

One small bit of advice ... stick to the facts.
Statements like "I'd like to give off a more professional image by being VAT registered" make no sense - why would anyone be impressed that you're VAT registered if you're not charging VAT on most of what they buy from you?
It's fine that you want to be registered so that you can 'reclaim' the VAT incurred on items that are necessary for your business, so that's a good enough reason.

But, as your adviser will apprise you, being registered does come with extra liabilities ... not just the obvious one of Quarterly returns (and the likelihood that HMRC will take an interest at least initially), but also that there will be items on which you will have to charge VAT (the p&p that you mentioned for example).

Thanks (3)
By Bobbo
16th Apr 2024 12:21

It's a shame your question refers to "VAT exempt food sales" because after that you consistently refer to zero rated. The first thing to understand is that 'VAT exempt' and 'zero rated' are absolutely not synonymous.

That aside, yes businesses that make entirely or predominantly zero rated supplies will usually be in VAT reclaim position. You might attract some attention from HMRC, but assuming you have retained sufficient records all should be fine.

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