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VAT on pre-reg expenditure

Gem7321Gem7321 Experienced MentorDevonMAAT, AAT Licensed Accountant Posts: 1,438
Has anyone else seen the article on another popular accountancy forum about HMRC changing their interpretation of the law surrounding claiming input VAT on pre-registration expenditure? I find this shocking, as stated in the article it has been practice for 43 years to claim input VAT on pre-registration expenditure up to 4 years before the date of registration!

Here's a snipit:

So what’s changed?

When an established business registers for VAT it will already hold some stock and assets which will be used after the registration date in connection with its VATable sales. For the last 43 years, the trader has been able to reclaim all the input VAT paid on those goods, in his first VAT return, as long as these conditions are met:

the goods were acquired in the four years before the date of registration
the items are still held at the date of registration.

However, if you ring the VAT helpline you may now be told the trader can’t reclaim all of the input VAT paid on those goods. HMRC says the input VAT should be reduced to take into account the use that has been made of the goods before the VAT registration date. There has been no change in practice for VAT reclaims on services, which must be provided in the six months before registration.


  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,431
    Thanks for the info @Gem7321 ; this topic has just been raised on the forum last week. I wonder how many accountants are aware of this "rule" and what are the consequences of inadvertently over claiming?
  • Gem7321Gem7321 Experienced Mentor DevonMAAT, AAT Licensed Accountant Posts: 1,438
    I do wonder how much they will be prepared to throw at it as I imagine it will bring in substantial revenue for them. I'm watching this closely!
  • JawzJawz New Member West MidlandsRegistered Posts: 53
    Thanks for the info Gem7321 B). One have to more cautious on these issues now a days as HMRC are on the offensive regarding wrong claims especially on VAT.

    It may not be relevant to your post but latest figures show the number of raids carried by them during tax investigations increased by 18.6% compared to last year! You're definitely spot on, anything to bring in more revenue for them.
  • BeccaLouJ9BeccaLouJ9 Experienced Mentor DevonFMAAT Posts: 1,022
    edited June 2015
    ....And yet the Rev website still has the same old info on:

    5. Purchases made before registration

    There’s a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is:
    4 years for goods you still have, or that were used to make other goods you still have
    6 months for services

    You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply.

    You should reclaim them on your first VAT Return (add them to your Box 4 figure) and keep records including:
    invoices and receipts
    a description and purchase dates
    information about how they relate to your business now

    It obviously confuses people when there is conflicting info out there, and it is generally the Rev that provide this info. The above snippet was updated at the start of May. No explanation that there will be some catches...

    Thanks @Gem7321 for the info. Where was it you read this?

    B xx
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,431
    @BeccaLouJ9 I believe it was an article on AccountingWeb.

  • stevo5678stevo5678 Well-Known Cheltenham Registered Posts: 325
    I get the asset reference and this has always been the case. If you buy a van a year before trading you need to bring it into the business after a years depreciation basically and will therefore be claiming less VAT than the original amount paid. That's makes sense .
  • Gem7321Gem7321 Experienced Mentor DevonMAAT, AAT Licensed Accountant Posts: 1,438
    Here's a link to the actual article - hope it's allowed! If not please remove admins! http://www.accountingweb.co.uk/article/secret-vat-rule-used-against-new-traders/577919
  • Claire RClaire R Just Joined Registered Posts: 13
    This is a timely and useful post for me, thank you Gem7321.

    Perhaps I can ask some advice here if I may?

    I have recently been approached by a potential new client. He has registered for VAT and wants me to produce his first return which mostly includes pre-reg costs. That's fine but on looking at his VAT account his first return was for the period ending April and HMRC have "assessed" him without a return and applied a charge to his account. Is that normal? Do you know, if I accept the client and get his return in for that period asap will it override the assessment or will he need to appeal in some way?
  • MarieNoelleMarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,431
    It looks like the client hasn't file a return for that period therefore HMRC has sent him an assessment (i.e an estimate of what they think his VAT liability should be). He would need to pay this asap (interests are running), then file a return for the period and HMRC will adjust the position of the client ( i.e if a repayment is due).
  • Claire RClaire R Just Joined Registered Posts: 13
    Thanks for that Marie Noelle. I wasn't sure if he should pay it or get the return in first so I appreciate your response.
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