VAT – Purchases made before registration

 

I run a small limited company and am about to become VAT registered. I believe there are certain costs that I can claim VAT back for before the VAT registration date. Can you explain how this works and what I can claim back?

 

 

It is true that some VAT incurred on business costs before you become VAT registered can be reclaimed.

These costs must wholly relate to the business which is going to be subject to VAT post-registration.

This reclaim is restricted to certain time limits, being 6 months for services and 4 years for goods purchased that you still hold in stock or were used to make items that you still have in your possession.

For example:

  • You register for VAT on 1 June 2015 and all future sales are to be subject to VAT
  • On 1 November¬†2014 you paid ¬£1,200 to a company to have your company website re-designed. They were VAT registered and as such your business incurred ¬£200 of VAT.
  • In this scenario the service received was more than 6 months prior to registration and the VAT cannot be reclaimed. If, however, you had registered for VAT on 30 April 2015 this amount would be available to reclaim.

In order to reclaim any pre-registration VAT you should enter the amounts on your first VAT return you submit to HMRC. You should also keep records of the original costs including:

  • Invoices and receipts
  • Description of the costs and purchase dates
  • Details of how these relate to the VAT registered business.

The timing of registering for VAT can be crucial, not only relating to claiming pre-registration VAT but also in regard to VAT you will have to charge on sales to non-VAT registered customers.