How succesful do you need to be to be VAT registered. If someone was to set up, lets say, a photography business, they would need to buy photography equipment, a van to move that equipment around in, fuel to run the van on and hotels to stay in. All of which attract VAT all of which could be reclaimed! Now if that business was a complete failure and no pictures were ever sold, could the VAT man demand his money back?
Further to this, if that person was retired and paying income tax on his pension, could the losses of that business be offset against his pension thus reducing his income tax burden?