When starting out in business one of the considerations will always be whether or not to register for VAT. Many do not, and only consider this when they are contemplating a major purchase. Is it worth registering for VAT and claiming the input tax incurred on the expenditure prior to registration?
The rules on pre-registration input tax are set out in the VAT Regulations 1995 (Reg. 111).
Where goods were bought by the business in the four years prior to the date of VAT registration and those goods are still on hand at registration, input tax may be claimed to the extent they are for use in making taxable supplies. This means that if the business uses those goods for exempt, non-business or private use, there would need to be an apportionment to reflect that. However, there is no adjustment required to reflect use prior to VAT registration. HMRC did at one point implement a policy of requiring such an apportionment and amended their internal guidance to this effect, but this was later rescinded. Assuming wholly business use in a fully taxable business the input tax would be claimable per the original VAT invoice.
However, before rushing to register there are a couple of other things to consider.
Firstly, who are your customers? If your supplies are mainly to individuals or unregistered businesses, you may find it difficult commercially to pass on VAT on your sales in full. If you are unable or unwilling to increase your prices and you have to account for output tax out of your turnover, effectively paying 1/6 to HMRC, does the VAT recoverable on the purchases outweigh that additional cost to your business? If not it may be better to defer voluntary registration until closer to the four-year time limit for claiming pre-registration input tax, or even sacrifice it altogether. There is less scope for delaying registration while still being entitled to input tax where the VAT has been incurred on services, as the time limit for pre-registration input tax on services is only six months.
If your customers are mainly VAT registered businesses in a position to recover the VAT you charge, then registering voluntarily should not create a problem, other than the additional admin.
For example, it makes sense for crofting businesses to be registered. They make zero rated supplies (livestock) and therefore can reclaim all of their input tax without fear of paying output tax. Altenatively a self employed builder with mainly non-business customers does not have this same luxury. Registration for this business would create, if they passed the VAT burden on to their customers, an immediate 20% increase in their charges.
It's always worth considering that, as an individual in business, you should be trying to earn more money than you spend. This may seem quite simplistic but consider it from a VAT point of view. If you are making a profit, you will be paying more VAT than you are reclaiming. So if you are VAT registered, paying VAT may not be such a bad thing.