Recovering VAT incurred before registration

Businesses can claim VAT on expenditure incurred before they were required to register for VAT.

There are restrictions on what can be claimed. In 2015 HMRC increased the restrictions on the grounds that assets were partly consumed prior to VAT registration to make supplies which were not subject to VAT, even if those assets were on hand at the date of VAT registration, and therefore the portion of input tax on the asset attributable to what had been consumed was not allowed.

On 4 November 2016, HMRC issued RCB 16 (2016) which back-tracks on this additional restriction. HMRC were incorrect to disallow any part of the full recovery of VAT if the asset was still on hand at the date of VAT registration.

Affected businesses should consider submitting claims to HMRC for any amounts which were not fully claimed or for which HMRC issued an assessment. Businesses should also claim a refund of any penalties and interest which were wrongly applied by HMRC.  In addition, businesses should request the payment of interest from HMRC on any amounts incorrectly paid to HMRC or wrongly withheld by them.

For further information and help on recovery of VAT incurred pre-registration, please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown.