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VAT and pre-registration expenses

VAT and pre-registration expenses

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Just a quick check of my understanding.

Client is the director of a newly-formed consultancy company which has not yet started trading and not yet registered for VAT. It will be beneficial for the company to join the flat rate scheme.

All pre-VAT-registration expenses for business purposes (e.g. ipad, printer, marketing etc) can have the VAT reclaimed on the first VAT return even if the company opts to join the flat rate scheme from the date of registration.

(The HMRC guidance reads "You reclaim VAT on goods bought before registration by including their value in box 4 of your first VAT Return. Note that you can do this even if you are on the Flat Rate Scheme" so I am confident that this is correct.)

Once the company has joined the flat rate scheme however, it will no longer be able to reclaim the VAT on any inputs to the business apart from capital items with a VAT-inclusive value of >£2,000.

Bearing in mind the above, I plan to suggest to the client that they buy things such as printer, ipad etc (which won't come to more than £2,000) prior to the date of VAT registration, to ensure that the VAT can be reclaimed. 

Just checking I have not missed anything obvious!

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chips_at_mattersey
By Les Howard
26th Aug 2014 09:19

Pre-registration input tax & FRS

You are correct in respect of the first VAT Return. This is a helpful 'concession' and should be more widely known. It also includes purchases of services prior to registration, not just goods.

Your comment about capital items is important. But do note that the £2,000 limit is per item, not the total of capital purchases.

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Replying to Glennzy:
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By sparkler
26th Aug 2014 09:56

Thank you

leshoward wrote:

You are correct in respect of the first VAT Return. This is a helpful 'concession' and should be more widely known. It also includes purchases of services prior to registration, not just goods.

Your comment about capital items is important. But do note that the £2,000 limit is per item, not the total of capital purchases.

Thank you Les. Yes, I was aware that the concession includes purchases of services (for up to 6 months prior to reg. date) and goods (for up to 4 years prior to reg. date).

As far as I am aware, the £2,000 minimum for a VAT reclaim on the flat rate scheme is per "invoice" - so if the client purchased a computer, printer, scanner and mobile phone all on the same invoice, with a VAT-inclusive value of more than £2k, then this would be eligible for the capital items concession. But if the items were purchased individually, on separate invoices, then the concession would not apply. 

As my client wishes to buy such items, but is unlikely to buy them altogether on an invoice totalling more than £2k, then it would be better to buy them before VAT registration, and joining the flat rate scheme, so that the VAT can be reclaimed on the first return.

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By bailiemartin
04th Mar 2015 15:10

Not sure

In regards to the pre-registration expenses VAT reclaim for the flat rate scheme- I have been given/see/heard conflicting advice on this.  So I thought I would ask a the VAT man, which I previously has contact with on an investigation.  He stated clearly that NO pre-registration VAT was able to be reclaimed and that is why they provide the 1% reduction on the first year's percentage. Im still not convinced....    

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Replying to David Heaton:
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By agillies
05th May 2015 17:07

VAT flat rate

See vat guide 733 - it cleary states you can. 15.2 refers

 

I also thought that claim vat on stock on hand was strange but it makes sense,  say you have £1,000 materials on hand.  If you charge the customer £1,000 using flat rate you are effectively matching it to the stock.  In reality you might charge £2,000 so you will have to pay vat on some of the profit - but its still important to claim vat on materials and assets on hand 

 

 

 

 

 

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By Clare Chapman
11th Jul 2015 15:46

Transition to FRS query

Thanks for this guidance. The specific section dealing with VAT on pre-registration expenses is 7.6 of VAT guide 733 and 5.2 of 700/1.

What I can't find and would appreciate some guidance on is how to handle receipts relating to pre-registration sales.  The only thing I can find relates to the Cash Accounting Scheme, where the Indicator/FL Memo advice is that 'Newly VAT-registered businesses should take care not to account for output tax on amounts received which relate to pre-registration supplies'.

Based on this, it looks to me like it is possible to claim VAT on pre-registration items in line with normal VAT registration rules AND to not have to pay VAT on receipts post-registration relating to pre-registration sales.

Is this a correct interpretation?

 

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By pjjh
04th Aug 2015 12:00

Pre-registration input VAT is partially recoverable

My accountant says that the FRS £2k threshold also applies to claiming pre-registration input VAT.

That's consistent with my reading of VIT32000 on regulation 111:

"The amount of tax that can be recovered is the amount that would have been deductible had the business been registered at the time the tax was incurred."

http://www.hmrc.gov.uk/manuals/vitmanual/VIT32000.htm

 

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Jessica Pillow
By Jessica Pillow
01st Sep 2015 16:15

Pre-registration input VAT if flat rate registered

I had a fight with a tax inspector on this one just now.  But on reading VAT guide 733, he conceded that he was actually wrong and you can claim full pre-registration input VAT if the client is VAT registered under the flat rate. 

Thanks for the help with this :)

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