Pre-registration VAT

Again, it’s been made clear that the VAT you paid before registration is recoverable, with limits of course. However, the cases still go to tribunal. So what can you do?

Rules
Any VAT from goods purchased within 3 years before your registration can be reclaimed providing you still have proof when you register. Services work in much same way, however the timescale is only 6 months.

Recently
The VATman, however, isn’t able to follow these rules, or so it appears. In a recent case a VAT inspector noticed that a taxpayer had reclaimed a few months premises rental for the period before registration, he queried this and the accountant showed the inspector a copy of the relevant section of VAT Notice 700 which clearly states that the taxpayer was entitled to reclaim the VAT back. The VATman denied this to be true and left to talk with those higher up than himself, they agreed with him and assessment for the taxpayer followed. The taxpayer of course, appealed and took it to a tribunal.

Example
At the tribunal the VATman tells us (in error, and not meaning this) that nobody would ever need to register for VAT because if you can’t make taxable supplies before your registration then you’ll never exceed the VAT threshold. He explained that the legislation only applied where the input VAT claimed related to supplies can only be made by taxable persons. And before registration they weren’t a taxable person so they couldn’t have made taxable supplies and therefore no reclaim was allowable. Obviously, there’s a major flaw in this argument, but we’ve already pointed that out above. After many other equally lame arguments the chairman threw out the VATman’s case (surprise, surprise!) and found in favour of the taxpayer, awarding costs to them also.

Entitled
As we’ve seen, you are more then entitled to claim back on rent and similar services prior to registration, and the VATman can’t contend this (although he might try to). You’ve got 36 months before your first VAT return is due in, to claim back on.

Summary
If you’re within the 3 year time limit, then claim the VAT back! Keep copies of all relevant documentation, and write the VATman a voluntary declaration (a letter) justifying your position. The VATman can extend the normal claim period but expects a damn good explanation for doing so. This 3 years can also work in reverse, i.e. after 3 years the VATman can’t overturn any error or claim made. Once this deadline has passed you are in the clear.