VAT is deductible on assets used prior to registration
The fact that HMRC allows businesses to recover VAT on goods and services used before registration isn’t new (if you didn’t realise then now is your opportunity).
What’s different now is that HMRC has clarified the rules because of inconsistencies in the way businesses have been treated.
The clarification goes as follows:
- VAT on services received within six months of EDR and used in the business at EDR is recoverable in full
- VAT on stock is deductible to the extent that the goods are still on hand at EDR (for example apportionment may be required)
- VAT on fixed assets purchased within four years of EDR is recoverable in full, providing the assets are still in use by the business at EDR.
Full recovery only applies if the business is fully-taxable. Businesses who are partly-exempt, have non-business activities, or need to restrict VAT deduction for any other reason, will need to take that into account when calculating deductible VAT.
HMRC will accept corrections for overpayment of VAT in the following circumstances:
- the business has reduced the VAT it deducted on fixed assets, to account for pre-EDR use
- HMRC have raised an assessment of tax to account for pre-EDR use of fixed assets
- HMRC have reduced a repayment claim to account for pre-EDR use of fixed assets
HMRC will consider claims for repayment of penalties and interest charged as a result of assessments.
If you want to recover VAT on assets used by your business prior to registration or you are unsure whether or not you can, then Lewis Smith & Co. can help.
Lewis Smith & Co. – Accountants for Brierley Hill businesses for over 30 years.