Businesses are required to register for VAT purposes when their annual taxable turnover exceeds £85,000 (this limit applies from 1 April 2017). You will not have to account for VAT on your taxable sales up to the date you are required to register, but interestingly, you may be able to claim back VAT you have paid out on purchases of goods, services and equipment, prior to the VAT registration date.
Accordingly, if you started a new business and were not required to register for VAT straight away, the first thing you should do when you do register is to explore the possibility that you can recover VAT you have paid on past purchases.
There’s a time limit for backdating claims for VAT paid before registration. From your date of registration, the time limit is:
- 4 years for goods you still have, or that were used to make other goods you still have
- 6 months for services
You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply.
Complications can arise if you have acquired assets prior to registration. There is an argument that any attempt to recover VAT on the purchase of equipment, vans etc. prior to VAT registration, should be restricted for any contribution the assets will have made to sales prior to registration, but it is not impossible to recover a proportion of the VAT charged.
You should make a claim on your first VAT Return (add them to your Box 4 figure) and keep records including:
- invoices and receipts
- a description and purchase dates
- information about how they relate to your business now
If your pre-registration purchases and other costs are significant, this facility can produce a reasonable cash flow benefit. Please call if you would like our help to assess any possible claim you could make, in particular, the recovery of VAT paid on the purchase of pre-registration equipment. We can also advise how to make the correct entries in your accounts software, if you use this to file your VAT return.