Claim back the VAT on things bought before VAT registration

When you first register for VAT you’re allowed to claim back the VAT on some of the things you paid VAT on before you became VAT registered. The claim should always be made on your first VAT return. HMRC are ‘allowed’ to let you claim at a later stage but they don’t have to do so.

You must be able to provide receipts showing the VAT for anything that you claim the VAT back on in this way. Be warned that HMRC are very likely to ask to see all the supporting VAT receipts if you put in a big reclaim of VAT on your first VAT return. This is nothing to get worried about as long as you’ve stuck to the rules.

You can claim the VAT back on any ‘goods’ that you’ve purchased up to 3 years before your registration date as long as you still have the goods on the date that your registration starts. ‘Goods’ would include vans, computers, promotional material, uniform, fax, telephones and even the tank full of fuel you bought the night before your registration started.

You can also claim back the VAT on any ‘services’ that you’ve paid for up to 6 months before your registration date as long as the service wasn’t one that you ‘sold on’ before your registration date. So you could claim back the VAT on your accountant’s bill from 5 months ago but you couldn’t claim back the VAT that a subcontractor charged you last week if you’ve invoiced your customer for the job before your registration date.

The good news is that you can still claim back the VAT on these pre-registration expenses even if you’ve registered under the Flat Rate Scheme (FRS).

Normally under the FRS you can only claim back the VAT on purchases of ‘capital assets’ costing over £2,000 including VAT; so as far as couriers are concerned usually just on the purchase of a van. When claiming the VAT on pre-registration expenses however you can claim back the VAT on all the purchases mentioned above as if you weren’t on the FRS. So if you were to buy your new laptop 2 weeks before you registered for VAT on the FRS then you’d still be able to claim the VAT back on it. If you bought it just after registering for VAT on the FRS you wouldn’t be able to claim the VAT unless it had cost you £1702.13 plus VAT (£2,000) or more.

The only ‘gotcha’ with regards to the FRS is that if/when you sell anything that you’ve claimed the full amount of VAT back on using the above method (your van for instance) you have to account for the VAT on the sale at the normal rate rather than at the FRS rate. So if you’ve bought your van 3 years ago for £8,000 (plus £1,400 VAT) and claimed back the VAT, then when you sell it next year for £1,500 (plus £262.50 VAT) you’ll have to pay HMRC the full £262.50 VAT when you sell it, rather than £135 under the FRS.

Given that you’ll almost certainly be within a year or so of starting your courier business when you decide to register for VAT, it’s certainly worth going back and claiming all that you’re entitled to.

Posted under Courier Financial Issues, VAT

Posted by Alec at 7:28 pm, July 8, 2008

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