Can I Reclaim VAT Before VAT Registration?

Value Added Tax (VAT) is an indirect tax on consumer spending that is charged on most goods and services supplied within the UK. VAT is collected by VAT-registered businesses at each stage in the production and distribution process of supplying goods and services. The VAT charged on sales or taxable supplies is called output tax. Taxable persons charge output tax to their customers and periodically (usually quarterly), they pay it over to HMRC. VAT paid by a business on purchases or expenses is called input tax. VAT-registered businesses can reclaim their input tax by deducting the input tax they have paid from the output tax which they owe and paying over the net amount only. If the input tax exceeds the output tax, then the balance is recoverable from HMRC.

The VAT-registration threshold is £85,000. A business must register for VAT once their total taxable supplies in the last 12 months reaches this threshold. A business must also register for VAT if their total taxable supplies are expected to exceed the threshold in the next 30 days. Even if they are not required to register for VAT, a business can register voluntarily provided they are making or intending to make taxable supplies.

When you register for VAT, you may be able to treat the VAT you paid on goods and services received before you were registered for VAT as though it were input tax and therefore reclaim this VAT. You can reclaim VAT on these expenses if you hold VAT invoices for the items as this is the evidence required by HMRC.

Not sure how to pay VAT online? Click that link to our article to find out more!

VAT on Goods Pre-Registration

To reclaim the VAT incurred on pre-registration goods, you must meet the following conditions:

• The goods were supplied not more than 4 years before the business was registered or was required to be registered.
• The goods were supplied to the person who is now registered for VAT.
• The goods were obtained for the business which is now covered by the VAT registration and related to its taxable activities. If the goods were related partly to taxable activities and partly to other activities, you must work out what proportion of the use of the goods related to the taxable activities.
• You still hold the goods, or they have been used to make other goods which you still hold.
• You compile a stock account of the goods. This must show the quantities of goods and the dates when you obtained them. If you used any goods to make other goods or disposed of them after you were registered for VAT, the account must give details with dates.
• VAT cannot be reclaimed if it was incurred on goods which have been completely used up before registration.
• For fixed assets such as a van or machinery, you do not need to reduce the VAT you deduct on these assets to account for any use of the asset before you’re registered, provided the asset is still in use in the business when you register. However, you must reduce the VAT you deduct on stock for resale to account for any stock that is sold before you’re registered.

Want to know more about MTD deadlines? Check out our article “Making Tax Digital (MTD) For VAT”.

VAT On Services Pre-Registration

To reclaim the VAT incurred on pre-registration services, you must meet the following conditions:

• The services were supplied not more than 6 months before the business was registered or was required to be registered.
• The services were supplied to the person who is now registered for VAT.
• The services were received for the purposes of the business which is now covered by the VAT registration and related to its taxable activities. If the services related partly to taxable activities and partly to other activities, you must work out what proportion of the use of the services related to the taxable activities.
• The services weren’t related to goods which you disposed of before you were registered such as repairs to a machine which was sold before registration.
• You compile an account of these services, this must describe the services and the dates when you received them and, if the services related to goods which you disposed of after you were registered for VAT, the account must give details with dates.

Need a VAT calculator? If so, check out our article “Step-by-step tutorial: how to use a VAT calculator like a pro!”. 

To conclude, you can reclaim the VAT on expenses you incurred before VAT registration provided you meet all of the above conditions and have VAT invoices to evidence the purchases.

Dealing with value-added tax can be a hassle. Focus on growing your business while we handle your quarterly VAT returns. Sleek’s VAT accounting services are fast and easy to use. Learn more today.

For VAT consultancy, please get in touch, please get in touch.