VAT on Pre-trading Expenses
Newsletter issue - July 2015.
When you register your business for VAT you can reclaim the VAT charge on goods you acquired within the previous four years, and on services provided to your business within the last six months. As long as the items were used for your business, and you still held the goods (as stock or business assets) at the date of the VAT registration, you can claim back the VAT on your first VAT return.
However, the VAT man has recently changed his view on exactly how much VAT you can reclaim in this situation. He now says that any use of assets in your business in the period before you registered for VAT should be discounted. This is best explained by an example.
Example
Chad has a livestock transport business. On 1 April 2012 he purchased a lorry for £90,000, including VAT of £15,000, which he expects to use for 10 years. He registered his business for VAT with effect from 1 April 2015, exactly three years into the lorry's life.
The VAT helpline advised Chad to reclaim 7/10ths of the VAT incurred on the lorry: £10,500 (7/10 x £15,000), as the first three years of the lorry's life were used for sales for which VAT was not charged.
Since VAT was introduced to the UK in 1973 the rule has always been that ALL the VAT on assets in use at the VAT registration date could be reclaimed. In the example above Chad would have reclaimed £15,000 in respect of his lorry.
The new interpretation of the VAT law has not been included in the VAT notices and leaflets published by HMRC. So if you have previously reclaimed all the VAT on goods (up to four years old) held at the date your business became VAT registered, you don't have to alter your VAT claims.
If you believe you will need to register for VAT soon, as your turnover will exceed £82,000 for the last 12 months, talk to us without delay.
BLOG POSTS
Posted on Mon, 3 Aug 2015
Posted on Mon, 3 Aug 2015
Posted on Wed, 29 Jul 2015
TWITTER
Tweets by @OWSupportLATEST TAX TIPS AND NEWS
It has been revealed that companies across the UK have paid £95.2 billion in Business taxes in the financial year just finished (23/24) - a rise...
Baroness Ros Altmann, a leading campaigner on pensions, has highlighted her fears after figures showing that the number of pensioners liable for tax...
Business owners need to be aware of a batch of new laws that have just taken effect covering employees' rights....
The saga over whether HMRC will axe its tax helpline continues to rumble on, with the latest comments suggesting it may still close after all....
Q: I've started a new job quite recently with a hybrid working arrangement. I work from home 3 or 4 days per week,...
5th Companies House fees are increasing due to the recent introduction of the ECCTA....