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Claiming VAT on expenditure prior to Registration: A Practical Example

By Taxwise

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I bought a new van in 2010 with the intention of using it for business. However significant business use only began in January 2013 after the launch of my new website. The business has been successful and as a consequence is now required to register for VAT. Can I claim for input tax on expenditure incurred for business purposes prior to the date of registration?

A claim can be made on expenditure incurred for business purposes prior to the date of registration, for assets and stock at hand purchased within the last 4 years, together with services incurred six months prior to registration. The claim is normally made on the first return but can be made in any period up to four years after, if supporting evidence has been mislaid. Pre-registration VAT can only be reclaimed as far as it is attributable to later taxable supplies, so before assuming all of the input tax is reclaimable you should examine the extent of business use.

A business cannot recover VAT on supplies that were purchased for non-business or private purposes. For example an individual buys a van to use for wholly private purposes. Three years later the individual registers for VAT and uses the van exclusively within their business. The VAT paid on the van is permanently outside of the VAT system because there were no business activities at the time the van was bought. Therefore the VAT paid on the van can never be brought back in.

You must also take into account any use that has been made of the asset, stock or services prior to registration. For example a business that is trading below the registration threshold acquires a van.

After three years the business registers for VAT. The van is still on hand at registration and has been used to make supplies that were not subject to VAT. The amount of VAT that can be recovered should reflect the use of the van for making supplies before registration and apportioned accordingly.

In your case despite having an intention to use the van for a future business, your first use was wholly for private purposes so no claim can be made. Unfortunately for you no claim can be made on the cost of the website either as this service was received more than six months prior to registration.
Because of the time limits on recovery you could have elected for voluntary registration at an earlier date, however as you have already submitted the VAT 1 it is too late to back date the registration.

Published July 2013