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| Dont forget your pre-registration input VAT |
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| In a recent tribunal case it was once again made clear that the VAT you paid before registration is recoverable, within certain limits. What should you do to make sure you don’t loose out? |
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Getting the VAT back
Goods. You can reclaim the VAT on goods that you have purchased in the three years prior to registering for VAT and that you still have on hand at the time of registration.
Services
You can only recover the VAT on services incurred up to six months prior to registering for VAT. These rules are quite simple and easy to follow, unless you are the VATman, as a recent case shows…
Recent Case
What happened
A VAT inspector visited a taxpayer and noticed that they had reclaimed the VAT on their shop rental for the four months prior to registering for VAT. When he queried this, the taxpayer’s accountant (who was also present) showed the inspector a copy of the relevant section from VAT Notice 700 which clearly shows that the taxpayer was entitled to reclaim the VAT. Unconvinced the VATman went away to consult his superiors who concurred with his view and an assessment for £1,288 duly followed. The taxpayer engaged a specialist VAT consultant and appealed the matter to tribunal.
At the tribunal the VATman argued that the relevant legislation (Regulation 111 of SI 1995/2518) only applied where the input VAT claimed related to supplies on which VAT is actually payable and taxable supplies can only be made by taxable persons. During this period the taxpayer was not a taxable person so they couldn’t have made taxable supplies and therefore no reclaim was allowable.
Clearly the VATman had not thought this through very well! This would, of course, mean that nobody would ever need to register VAT because if you don’t make taxable supplies you can never exceed the VAT registration threshold.
Win for the taxpayer.Various other, minor, and equally ridiculous arguments were then put forward in support of the assessment. Not suprisingly the tribunal chairman threw out the VATman’s case, found in favour of, and awarded costs to, the taxpayer.
To Your Advantage
Its now clear that you are entitled to recover VAT on rents (and similar services) prior to VAT registration and the VATman can do nothing about it. The time limit for claiming preregistered VAT back is 36 months after the date your first VAT return was due in.
Tip 1.If you are within this three-year time limit then make a claim for this input VAT. Write a letter (called a voluntary declaration) to the VATman justifying your position. The VATman can extend the normal claim period (i.e. from the first return) but expects a good explanation as to why he should do so. Make sure you keep copies of the relevant invoices supporting your claim on your VAT file.
Tip2.
This time limit works both ways, meaning if you’ve gone past this point the VATman cant overturn any claim you have already made. You are in the clear!
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