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A useful pre-registration input tax case

23rd Aug 2019
VAT Consultant
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This case concerned VAT incurred by Mr Derek McKee in relation to legal fees. He had a dispute with a third party over rights to software he had written and which he subsequently sold through his company Koolmove Ltd. The company recovered the input tax amounting to around £31,000.

The VAT was incurred prior to Koolmove’s incorporation and its registration for VAT. The question was whether the company was entitled to recover the VAT as pre-registration input tax under Regulation 111.

The Tribunal highlighted HMRC’s muddled thinking: “HMRC consider that the supply of services was made to Mr McKee as an individual not to the limited company.” That is precisely why Reg 111(a)(b) applies!

In finding for the taxpayer the Tribunal provided a useful summary of the rules relating to input tax incurred pre-registration and pre-incorporation:

In summary, therefore, as far as relevant present purposes, input tax can be claimed by a company in respect of supplies of services made prior to its date of incorporation for its benefit provided:

  1. the supplies were made for its benefit
  2. the supplies were made to a person who became a member or officer of the company;
  3. he or she was not, at the time, a taxable person;
  4. he or she has been reimbursed for the whole of the price paid (or the company has undertaken to do so);
  5. the supply was made for the purposes of the business to be carried on by the company and for its benefit or in connection with its incorporation;
  6. the supply was made within the six months before the effective date of registration.

The full decision is here:


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