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VAT voluntary registration, backdated, combining flat rate scheme and expensive capital assets.

VAT voluntary registration, backdated,...

Background:

I have a client who has turnover below the level triggering compulsory registration for VAT. The client only works with customers who are registered for VAT so would not lose business by voluntarily registering for VAT.

The client has recently incurred  (within the last 6 months) £1,000 in VAT on two items of capital expenditure (both exceeding £2,000).

Question:

If my client decides to voluntarily register for VAT then

a) Can my client backdate a voluntary VAT registration to the date of the earliest aquisition of one of these two items of expensive capital equipment?

b) Can my client also opt for the flat rate scheme for their trade/profession to be effective from the backdated registration date?

c) Will my client be successful in reclaiming the VAT on these 2 pieces of expensive capital equipment if under the flat rate scheme?

d) Going back to the backdated regiustration date, does my client need to issue "VAT only" invoices to each customer previously invoiced  without VAT?

Many thanks

John

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avatar
19th Mar 2012 09:32

Answers

Hi

There is no need to back-date the application to the first acquisition date. The legislation for the Flat Rate scheme allows for Input VAT to be reclaimed in two instances.
(1) For capital items costing £2,000+ VAT inclusive, which your items qualify for and 

(2) For pre-registration Input VAT under the normal rules (4 years for goods, 6 months for services)

It would be easier (and cheaper as you wouldn't have to issue revised back-dated VAT invoices for customers) to voluntarily register from say 1 April 2012 (gives you time to acquire your VAT number from HMRC) and opt for the Flat Rate scheme from that date. You would then still be able to claim back the Input VAT on your capital items as well as any other qualifying goods and services under the Pre-Registration Input VAT rules. 

Search the HMRC website for details on Pre-Registration Input VAT for more information on those rules. 

 

NB: - Don't forget to factor in the 1% discount for the Flat Rate percentage for the first 12 months of VAT registration.

 

Cheers. 

 

 

Thanks (1)
avatar
19th Mar 2012 09:34

Why backdate?

Why does the client need to backdate?

If the items are goods and purchased within the last 4 years then they can recover them on their first VAT return. This is obviously so long as they're still on hand at the date of registration.

For any services it's a six month window prior to registration.

So as long as the client registers before September 2015ish  they should get the VAT back on any assets.

The capital limits under the flat rate scheme aren't relevant to preregistration expenditure either, so backdating and putting the items within the flat rate period would be more likely to cause a disadvantage than an advantage anyway.

But to answer your questions:

a) yes, they just need to proive they were trading or had an intention to trade at that date, which buying the equipment probably demonstrates

b) Should be able to

c) Should be able to

d) Yes unless they want to take a hit on each of those invoices.

But as I say none of that is necessary. Register from a current date, join the scheme (if it's advantageous), pre-reg expenses claimed on first return and off you go.

Thanks (1)