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VAT: Claiming pre-registration expenses

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12th Mar 2019
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Neil Warren examines a case where the accountant came under pressure to register a company for VAT without reviewing the implications for its pre-registration expenses.Under pressure

SP Henson Engineering Ltd (TC06957) registered for VAT on 1 August 2016. This registration process appears to have been carried out by a junior member of staff working for the company’s external accountants, under heavy pressure from the company’s director.

The director wrongly thought that his company could claim input tax on all expenses incurred in the previous four years before the date of registration. He subsequently asked HMRC to backdate the VAT registration date to 14 December 2011, but HMRC refused this request.

Pre-registration input tax

There is no problem claiming pre-registration input tax on the first VAT return, but there are different conditions to meet for goods and services.

Goods

The VAT paid on stock or assets purchased in the four-year period before registration can be claimed. But those assets must be taken into use by the business during that time, and they must still be owned on the date when the business first became VAT registered. The good news is that input tax can be claimed based on the original purchase price of the asset, there is no adjustment needed for depreciation.

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Replies (8)

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By pfconsult
13th Mar 2019 11:15

Good article, thanks Neil. I have a client who built up a website (an online platform) which is his asset to generate income and incurred costs for the actual development and also incurred costs to borrow funds to invest in the development. strictly speaking the finance costs were incurred purely to obtain funding for the development. HMRC is refusing to go back more than 6 months as they consider both are services. Website is definitely an asset. What grounds we can challenge the HMRC decision?

Thanks (0)
Replying to pfconsult:
By Duggimon
13th Mar 2019 11:39

The supply of the bespoke website to your client is indeed a supply of services and not goods, I suspect that you will struggle to get HMRC to change their position.

I don't know what VATable costs your client incurred in securing funding but I can't imagine how any of those could be goods either.

Here's another article from Neil laying it out https://www.taxadvisermagazine.com/article/goods-or-services

Thanks (1)
Replying to Duggimon:
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By pfconsult
13th Mar 2019 12:35

Thank you Duggimon. They paid a fee for a finance broker who charged VAT to secure funding for the development. My argument is that the website is a good as it's still available and their income is generated from this website. (capital expenditure)

Thanks (0)
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By Leighley
13th Mar 2019 17:08

Good article Neil, thanks.

I'm a little confused, it may be my reading but it seems to be suggesting that if you go back 4 years for goods (meeting the criteria) and claim the input tax you have to account for the output tax as well, have I mis read it?

Thanks

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Replying to Leighley:
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By cyrynpen
15th Mar 2019 10:08

What I believe Neil is saying is that rather than make a claim for pre-registration tax, the director wanted to change the effective VAT registration date to 4 years prior.

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By AndrewV12
14th Mar 2019 08:54

Extract above
'The director’s view that he could claim input tax in respect of four years of expenses without accounting for a penny of output tax for sales in the same period was naïve to say the least. '

I think the Directors plan was to claim everything and cross his fingers, hope for the best and prepare for the worst, not the greatest of strategies, he should have claimed for all the Company was entitled and took a view on the rest.

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By SophieStephenson
19th Jun 2019 20:34

Hi Neil,

A Client has recently set up a private piloting company for which he had taken several courses to do be able to do this. The courses were invoiced in Feb & Nov 2018 and the VAT registration date for the new company is 1st April 19.
Does the training course class as goods or services? Obviously if it is the later we will not be able to claim the VAT back.
Thanks

Thanks (0)
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By ocooper
07th Feb 2020 08:15

Hi Neil,

Thanks for the article. I was wondering what happens if pre-registration VAT isn't claimed in the first VAT return. I know this is what is always recommended, but is there a way to do this in a subsequent return? If not, is it a case of following the VAT652 process?
Thanks
Oliver

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