If your business is registering for VAT, you may be able to reclaim VAT on certain goods and services purchased before your VAT registration date. HMRC applies specific time limits and conditions, so not every pre-registration expense will qualify.
What Expenses Can You Reclaim?
You may be able to reclaim VAT incurred before registration where the normal VAT recovery rules are met. Different time limits apply to goods and services.
1. Goods: You can normally reclaim VAT on qualifying goods purchased up to 4 years before your VAT registration date, provided the goods are still on hand at the date of registration and are intended for use in the VAT-registered business. This can include stock, raw materials and certain business assets that have not already been sold or used up.
2. Services: You can normally reclaim VAT on qualifying services supplied within the 6 months before your VAT registration date. The services must have been supplied to the person or business that is now VAT registered and must relate to the taxable business activities covered by the registration.
Where goods or services are used partly for taxable activities and partly for exempt or non-business purposes, the amount of VAT recoverable may need to be restricted.
What Cannot Be Claimed?
Pre-registration VAT cannot automatically be reclaimed simply because a cost was incurred for the business. A claim may be restricted or unavailable where:
- goods were purchased more than 4 years before the effective date of registration;
- goods have already been sold or used up before registration;
- services were supplied more than 6 months before registration;
- the cost relates to exempt or non-business activities rather than taxable business activities; or
- you do not have the evidence required to support the VAT claim.
Special rules can also apply to certain capital items, partially exempt businesses and costs incurred before a company was incorporated.
Reclaiming Pre-Registration VAT:
Pre-registration VAT should normally be claimed on the first VAT return you are required to submit after registration. The recoverable amount is included with your normal input tax claim in Box 4 of the VAT return.
Keep valid VAT invoices and supporting records showing what was purchased, when it was purchased and how it relates to the taxable business. HMRC may ask for evidence supporting the claim.
If you need help checking which costs qualify, preparing your first VAT return or keeping your VAT records compliant, our VAT services can help you manage the process correctly and avoid missing eligible claims.
Tips for Reclaiming Successfully:
- Keep detailed records: Make sure you have all of the legitimate and proper VAT invoices.
- Use accounting software: To streamline the VAT reclaim process, many businesses find it helpful to manage pre-registration expenses independently using accounting software.
- Consult professionals: Given the complexities involved, speaking with an accountant will help guarantee that you maximise your claim while remaining compliant with HMRC guidelines.
By following these important rules, you can reclaim pre-registration VAT on qualified expenses and improve your company’s financial situation from the outset of your VAT registration journey.
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