Hi everyone
I have a client who has recently set up as a limited company and subsequently registered for VAT.
The limited company consists of two directors who were previously trading as two respective sole traders.
My question is when claiming VAT for the usual periods prior to VAT registration for goods and services, assuming that an item has been acquired by the limited company upon incorporation (and is solely for the purpose of the trade), am I correct in thinking that we are entitled to claim the VAT in the usual way?
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The problem is that, if the directors incurred VAT as sole traders, the supplies to them were not supplies to the limited company and therefore not eligible for input tax recovery.
(You may be able to argue the continuity of the business activities to allow input tax recovery. I would ask HMRC to rule on it.)
Thanks a lot for your input Les - much appreciated.
I have searched the usual manuals of HMRC, and dug out the following:
'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.'
The above is obviously much easier to apply if John Smith is a sole trader, and then sets up 'John Smith Ltd' to carry on the same trade. It's purely under the circumstances of two sole traders incorporating a company together that made me question whether you could still apply the above.