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UniqueFinancial
CLAIMING VAT ON PRE-REGISTRATION EXPENDITURE
VAT is an administrative minefield for accountants, let alone business owners.
However a very important piece of favourable VAT legislation that all business owners should be
aware of is the entitlement to reclaim VAT on some of their expenditure made before they became
registered. Of course you must make sure that both the business and the entity are the same one that
made the original purchase (i.e. the business has not changed from a sole trade to a company).
There are different rules that apply however to the purchase of goods and the purchase of services.
VAT on the Purchase of Pre-Registration Goods
Businesses can reclaim VAT on the purchase of goods prior to registration providing that the goods
were purchased within the four years prior to the date of registration, and they fall within one of the
below categories:
1. The goods purchased will result in a sale/supply on which the business will be able to charge
VAT (i.e. the goods haven’t been used, sold or consumed at the date of registration). A good example
would be a builder who has a number of building materials in stock at the point of registering for VAT.
These materials in stock would be expected to be used on a future sale which will be charged VAT, an
therefore the original VAT on the purchase of the materials can be reclaimed.
2. VAT can also be reclaimed on goods which were purchased and used prior to registration, as
long as they continue to be used after registration to contribute in generating sales/supply on which
the business will be able to charge VAT. Examples of this would typically be capital assets such as
vans, plant/machinery, computer equipment, etc. Despite being used prior to the registration, you can
still recover 100% of the original VAT on the purchase.
VAT on the Purchase of Pre-Registration Services
It is extremely difficult to be able to prove whether a service paid for prior to registration has resulted
in a service provided to the business after registration. Therefore the rules for reclaiming VAT on the
purchase of services prior to registration only allow for purchases up to six months prior to the date o
registration.
Written by Lee Harris from LNH Management Solutions @LNH_Management
www.lnh-management-solutions.co.uk/