VAT on assets on hand, pre incorporation

VAT on assets on hand, pre incorporation

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Senior moment - a client is registering for VAT and has two vans at the time of registering.

One was bought after the company started trading, the other was bought a year before that date by the proprietor in his capacity as a sole trader (non VAT registered).

I'm thinking that the VAT was lost when the van was rolled into the Limited company from the sole trade, as the trader wasn't VAT registered, but HMRC's guidance says:

"A limited company cannot register for VAT until it is formally incorporated. Goods or services may have been supplied to the employees setting up the company before then.

A company can claim VAT on those goods and services if the tax relates directly to the business to be carried on by it following incorporation and registration for VAT. The six-month limit in respect of services and the four year limit for goods also apply to pre-incorporation claims"

Is this the same thing? I.e. the fact that the Van was originally bought with VAT and is on hand now is enough, or am I right that the VAT is lost on incorporation as there's a change of ownership?

Replies (8)

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chips_at_mattersey
By Les Howard
21st Apr 2016 16:42

Pre-registration input tax

The supply of the first van was not made to the limited company, so the company cannot claim the input tax. There was a FTT case which ruled quite strongly on this point and, I think, HMRC guidance is based on that.

Thanks (1)
By Ruddles
21st Apr 2016 16:52

But, Les ...

Para 11.4 of VAT Notice 700 suggests that in the appropriate circumstances the VAT may be treated as input VAT. Perhaps the Notice requires to be updated in light of the FTT decision you refer to?

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By norstar
21st Apr 2016 17:09

Yes, ref to FTT?

That's where I'm confused. The VAT guide says quite specifically:

 

"If your business is a corporate body, the rules above do not allow you to reclaim any VAT on goods or services obtained before the body was incorporated. But you can treat this VAT as input tax if the:

goods or services were obtained or imported by a person who became a member, officer or employee of the bodyperson was reimbursed for the full costperson was not a taxable person at the time of the supply or importation"

But then the second of those points would probably fail as upon incorporation, the van was rolled in at MV, not full cost.

My feeling is that the "spirit" of the rules is that if you bought a van personally for your future business, then registered for VAT, you're ok. But if you were a trader and the van is sold to a company on incorporation, it's not the same as an individual buying a van personally, and being reimbursed for it in full.

Would be interested to find this FTT case though.

 

 

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chips_at_mattersey
By Les Howard
21st Apr 2016 18:05

FTT case

This is the link to the SF Express Couriers decision. 

http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC01809.html

Thanks (1)
By Ruddles
21st Apr 2016 18:33

Thanks

That seems pretty fatal - it seems obvious (and reasonable) that the acquisition of goods or services needs to be incurred in comtemplation of, and directly for, the incorporated business.

I have a client with a related problem - they are just setting up as architects (no fees raised yet), but haven't yet got round to forming the company (about to do so). They are renting serviced office space so the question is whether the VAT on the rent can be treated by the company as input VAT. (I am aware that there already differences of opinion as to whether rent is included in the 6-month rule in any event).

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RLI
By lionofludesch
21st Apr 2016 18:34

Difference

The difference appears to be ...

a. HMRC grant a concession where stuff is bought prior to a limited company trading but

b. Not where there's an intervening non-registered business.

It's a bit of a fine distinction for me - what would happen if the sole trader registered voluntarily the day before he sold the business to the company and then transferred the VAT number to the new company?

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Replying to kathyk0410:
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By mark burke
25th Apr 2016 13:54

Pre-reg'n input tax

I think the voluntary registraton as a sole trader followed by VAT-free TOGC of business including assets to Ltd Co eliminates the problem all together.

Not even necessary to transfer the VAT number to still get the VAT back via the sole trader registration........but makes sense to do so to avoid de-registraton and re-registraton.

Main issue these day seem to be HMRC's policy of insisting on reducing VAT claim on pre-reg'n cost to accommodate pre-reg'n usage.

Thanks (1)
RLI
By lionofludesch
25th Apr 2016 14:12

Thinking

Exactly.  That was my train of thought.

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