Claiming vat on pre-registration expenses

Lots of businesses do not consider claiming back vat paid on pre registration expenses incurred prior to VAT registration when looking at registering for VAT for the first time. In this blog we look at how VAT on pre registration expenses works and a few things you will need to consider. 

VAT on pre registration expenses - How does it work?

When claiming back VAT on pre registration expenses there are a few things to consider:

1. For physical goods that were purchased by the business four years before VAT registration and are still in use at the date of registration, input tax can be claimed back in-line with the original VAT invoice (if they are used wholly for the business for making taxable supplies).
2. The entity which originally bought the goods must be the same entity as that which reclaims the VAT e.g. sole-trader/sole-trader, limited company/limited company – therefore if incorporation has taken place since the purchase of the goods the VAT would not be recoverable by a new VAT registered limited company.
3. If it is a voluntary VAT registration situation though the business should make sure they will be able to pass on an increase in their prices for the addition of VAT to their clients. This should not be a problem for VAT registered clients but if the majority of the clients are individuals or small non-VAT registered clients it will be a much bigger issue to consider.
4. When claiming back VAT on services, input tax is only reclaiming for those incurred six months prior to the registration date.
5. VAT registration will also bring an additional administrative burden for the business which is also a consideration to be looked at.

More details on the government legislation which govern the claiming of VAT on pre-registration expenses can be found in the VAT Regulations 1995 (Reg. 111).

Are you a business in Hull looking for help on claiming vat on pre-registration expenses?

Our Hull chartered accountants provide accountancy and business advice to local businesses and individuals in Hull and the surrounding area. If you are starting a new business in the Hull region and have questions about claiming VAT on pre registration expenses, deciding whether you will need to register for VAT or you don’t know whether you would have an advantage by registering please contact us and we can advise you on the best way forward for your business.