VAT recovery prior to registration – an opportunity?
HMRC state that their policy has not changed with regards to recovery of VAT incurred prior to VAT registration but clarify that treatment has been inconsistent which may have led to the overpayment of VAT by taxpayers.
Historically, HMRC has allowed a business registering for VAT to reclaim VAT incurred on goods and services before the effective date of registration (‘EDR’), provided those goods and/or services are used to make taxable supplies once the business is VAT registered.
Services must have been received less than 6 months before the EDR but this excludes services that the newly VAT registered business has supplied onwards. For goods, these have a more generous 4-year time limit for deduction of VAT incurred but this excludes goods that have been supplied onwards or consumed before EDR.
The interpretation of the word ‘consumed’ is apparently the point that HMRC now accept has been the cause of confusion, particularly in respect of business assets. HMRC have clarified that VAT on fixed assets purchased within 4 years of the EDR is recoverable in full (if a business is treated as fully taxable) providing the assets are still in use by the business at EDR.
HMRC are now inviting claims if taxpayers have not included pre-registration input tax on VAT returns or restricted the amount they have claimed based on the understanding of what HMRC allowed businesses to reclaim. In addition, it is understood that in some cases, HMRC have reduced pre-registration input tax claims on VAT returns or issued assessments to reclaim what they believe was overclaimed input tax.
More information can be found in HMRC’s Brief 16/2016
If you have any questions with regards this potential opportunity, please feel free to contact Andrew.firstname.lastname@example.org