VAT on Pre-registered Expenditure
18 November 2016 14:30
In what can only be good news for businesses, HMRC have confirmed that no adjustment needs to be made to VAT claimed by a business that relates to pre-registration expenditure. Previously, HMRC had suggested that any assets previously owned prior to VAT registration must be adjusted to take into account prior usage / wear and tear.
A newly VAT registered business can claim VAT on its first VAT return in relation to certain expenditure incurred prior to registration. Such expenditure includes:
- Services – six-month before registration.
- Goods – the window is four years, as long as the goods were wholly used in the business in the period before VAT registration, and are still owned by the business on its first date of VAT registration. The goods can be either business assets or stock.
A point that many businesses (and their advisers!) miss, is that a business which uses the flat rate scheme can also claim pre-registration VAT.
Has there been a change?
HMRC amended their internal guidance in 2011 to say they expected VAT claimed on goods to reflect wear and tear and use in the period before registration. However this change was not announced to the public (and indeed many businesses and advisers are still blissfully unaware of this), and no amendment was even made to VAT Notice 700/1.
HMRC’s previous policy was that input tax claims would be based on the cost of the goods, and the amended internal guidance did not come to light until early 2015.
So, it isn’t a change, but a U-turn?
HMRC have now confirmed that their revised approach is not correct. VAT claims for pre-registration expenditure should be based on the cost of goods as shown on purchase invoices. Any assessments raised by HMRC to reflect the incorrect policy will be reversed (although as a firm we continued to make a full claim subject to the ongoing review). If you have had a claim apportioned by HMRC, an appeal may be needed to bring it to their attention.
Any business that has applied its own apportionment and thus reduced VAT claim, can make an adjustment under the normal correction rules by amending the next VAT return. This is because the amount of VAT under claimed will almost certainly be less than £10,000.
If you have any queries in connection with this, or indeed any other VAT matter, why not get in touch to arrange a free meeting?