Reclaiming pre-trading VAT
20/06/2024

There are special rules that determine the recoverability of VAT incurred before a business registered for VAT. This type of VAT is known as pre-registration input VAT. There are different rules for the supply of goods and services, but VAT can only be reclaimed if the pre-registration expenses relate to the supply of taxable goods or services by the newly VAT registered business.

The time limit is backdated from the date of registration and is:

  • 4 years for goods on hand, or that were used to make other goods on hand; and
  • 6 months for services.

The pre-trading VAT input tax should be reclaimed on a business's first VAT return. When a new VAT registration is applied for, there is an option to backdate the registration (known as the effective date of registration), this option should be considered if there is additional input tax that will be made recoverable.

There are special rules for partially exempt businesses and for businesses that have non-business income and for the purchase of capital items within the capital goods scheme.

HMRC’s internal guidance on the issue provides interesting examples. One of those relate to the purchase of a van by an individual for wholly private purposes. Three years later the individual registers for VAT and uses the van exclusively within their business. The VAT incurred on the purchase of the van will never be recoverable because there were no business activities at the time the van was bought.


About Us

The practice was established in 1987 by Stephen Lofthouse who had previous experience in medium and large accounting firms and for 15 years was a financial and managing director in commercial firms.  During this time he was the owner and publisher of the taxation books `Taxation Simplified` for the self employed and individual tax payer and `Smiths Taxation` a comprehensive taxation journal for tax professionals.

Find out more...

Membership

Our Office

Lofthouse & Co
36 Ropergate
Pontefract
West Yorkshire
WF8 1LY

Tel: 01977 600272
Email: info@lofthouseandco.co.uk

Newsletter Sign up

With our newsletter, you automatically receive our latest news by e-mail and get access to the archive including advanced search options!
 
JUMP TO TOP