There’s long been uncertainty regarding the stance of HMRC on the deduction VAT incurred prior to a company’s registration for VAT. This led to inconsistent treatment of output VAT on such assets. Our Bolton Accountants can help you calculate if you are owed any VAT.
HMRC hasn’t changed their policy, just clarified that VAT on services received within 6 months of registration and used in the business at the date of registration is recoverable in full. VAT on stock is deductible to the extent that the goods are still on hand at registration. VAT on fixed assets purchased within four years of registration is recoverable in full, providing the assets are still in use by the business at registration.
Essentially, whilst VAT on services incurred leading up to registration can continue to be claimed in full, there may be some apportionment required for recovering the VAT on stock on hand to take into account any pre-registration consumption, which could present a further squeeze on start-up businesses.
Positively, however this clarification paves the way for reclaims of under claimed input tax if VAT had been restricted to reflect pre-registration use, or if HMRC raised an assessment to account for pre-registration use.
When looking at recovery of pre-registration expenditure it is important, because of the time limits, to ensure that the date of registration is the most beneficial for recovery of VAT.
Although many businesses wait until a compulsory registration is necessary, it is possible to register on a voluntary basis, providing that taxable supplies are being made / intended.
A registration date that maximises input tax recovery can therefore be arranged but it’s important to get this date right, first time.
For more help with finances contact our CHW Bolton Accountants team via our enquiry form or call 01204 534 031.
Want to find out how we can help you and your business? Get in touch today and let's have a chat.
11 November 2019
Even in this digital age some businesses remain heavily reliant on cash transactions. HMRC views these as high risk and as a result targets cash businesses with VAT enquiries, using special techniques to justify investigating them.
6 November 2019
The first big deadline for MTDfV is history and whilst there was a fairly high failure rate, it was not as bad as originally feared.
29 October 2019
BPR shelters the value of your business from the HMRC. The trouble is though, when you retire from your unincorporated business, the relief disappears immediately. CHW explain how you can preserve it.
22 October 2019
New rules will apply to employment termination payments from 6 April 2020 meaning that some settlements will be subject to NI in addition to tax. With this in mind, CHW look at how you can you improve the tax and NI efficiency of a termination settlement.
14 October 2019
You’ve engaged the services of a non-executive director (NED) who has experience in growing companies. The NED is freelance and has asked for her fees to be paid free of tax and NI. CHW explain whether that’s ok or if trouble with HMRC is on the horizon.