Can I reclaim Pre-Registration VAT?
By Cheaper Accountant, Jan 9 2018 06:07AM
A VAT registered business is entitled to claim VAT paid for goods and services purchased. There are also situations where a business is able to reclaim VAT paid before registration. However, certain conditions have to be met.
These conditions are listed as follows:
• The goods and services purchased before registration, must have been incurred to enable the business to produce products or provide services on which VAT is now being charged. A clear link is important here.
• Input tax can be reclaimed if the purchase of goods was incurred during the four years prior to registration.
• Input tax can be reclaimed if the purchase of services was made during the six months prior to registration.
• Reclaiming VAT paid before registration on goods or services is possible if the goods or services have not been fully consumed before the business is registered for VAT.
PrintMe Ltd, an advertising and printing company, started to trade in March 2017 and registered for VAT in December 2017.
After registration, the owner makes a list of all the assets and stock on hand, including furniture, IT equipment, stock, etc. at the date of registration and reclaims VAT on its first VAT return on everything purchased between March and December.
PrintMe Ltd can only reclaim VAT on stock on hand and is unable to do so on stock items purchased and sold before registration.
PrintMe Ltd also paid VAT on services purchased between March and December 2017 and is able to reclaim VAT on services that have not been fully consumed. These services included:
• Rent of premises
• Telephone and Internet bills
• Equipment leasing charges
As mentioned before, reclaiming VAT on services is possible when the purchase was made within 6 months prior to its registration, meaning that PrintMe Ltd can only reclaim on services purchased from July to December 2017.
Has the service been consumed?
When reclaiming VAT on services it is not always clear if they have been fully consumed at the date of registration. A common example would be the rent of premises. It is often the case and it stands to reason that once the rental period ends (for the month or quarter) the service would have been fully consumed.
However, there are circumstances where past rental payments may well contribute to post-registration sales of good and services. Printme Ltd operated a stockroom from the rented premises where stock was held and stored until it was sold post-registration.
This changes the situation somewhat and opens the door to a likely claim for VAT incurred on the rental costs as there is a clearly identifiable link between these pre-registration costs and the post-registration sales.
The same thinking could potentially be applied to telephone or internet bills and any other services.
Meeting the conditions to reclaim VAT on services purchased prior to registration can be unclear and might require some thought and analysis. You should always consider if the service was fully consumed against goods and services supplied prior to registration. If not, then you may well have grounds to make a claim.