Blog Search

Archives

HMRC clarify pre-registration of VAT policy

HMRC have recently published Brief 16 (2016), entitled Treatment of VAT incurred on assets that are used by the business prior to VAT registration. Broadly, the brief aims to clarify when, and to what extent, VAT is deductible and what to do if the correct treatment has not been applied.

A business registering for VAT may recover tax incurred on goods and services before their effective date of registration (EDR). This allows the recovery of VAT against goods and services as long as they are used by the taxable person to make taxable supplies once registered.

Services must have been received less than six months before the EDR for VAT to be deductible. This time limit is a simplification of the rules and means that detailed calculations of the use before and after EDR are not required. This excludes services that have been supplied onwards. VAT on services received within the relevant time limit can be recovered in full.

Goods have a four-year time limit for deduction that is consistent with the general VAT ‘capping’ provisions. Again, this excludes goods that have been supplied onwards or consumed before EDR. However, VAT on fixed assets purchased within four years can be recovered in full.

HMRC believe that the word ‘consumed’ has been interpreted inconsistently over time, particularly in relation to business assets and HMRC. The purpose of Brief 16 is therefore to clarify the policy position, which HMRC stress, has not changed. The policy is as follows:

Subject to the normal rules on VAT deduction:

– VAT on services received within six months of EDR and used in the business at EDR is recoverable in full;
– VAT on stock is deductible to the extent that the goods are still on hand at EDR (for example apportionment may be required);
– VAT on fixed assets purchased within four years of EDR is recoverable in full, providing the assets are still in use by the business at EDR.

Full recovery only applies if the business is fully-taxable. Businesses who are partly-exempt, have non-business activities, or need to restrict VAT deduction for any other reason, will need to take that into account when calculating deductible VAT.

HMRC will accept corrections for overpayment of VAT in the following circumstances:

– the business has reduced the VAT it deducted on fixed assets, to account for pre-EDR use;
– HMRC have raised an assessment of tax to account for pre-EDR use of fixed assets;
– HMRC have reduced a repayment claim to account for pre-EDR use of fixed assets.

HMRC will consider claims for repayment of penalties and interest charged as a result of assessments.

  • Latest news and testimonials

  • Latest News

    • September Q&A

      Q. I have two small businesses which are treated as a group for VAT purposes, so we only submit a single VAT return covering both …

      Read more
    • Making Tax Digital for Business: update

      In July, the Government confirmed that the Summer Finance Bill would be published in September, with the measures dropped from the pre-election Finance Bill being reintroduced …

      Read more
  • Testimonials

    • Partner – Solicitor

      I have worked with SBL over the last 10 years on numerous matters involving owner-managed business. They are professional, personable, knowledgeable and work incredibly hard to provide the best advice to their clients. I would have no hesitation in recommending SBL.

      Read more
  • Don’t hesitate to ask

    SBL are here to help. With accountancy advice and tax planning experts on hand to guide you and your business on the pathway to success! You can call us on 020 7580 6822, or email us on info@sblaccoutants.com or if you’d prefer you can complete our Free Online Enquiry Form and one of the team will be in touch shortly.

    Don’t hesitate to ask

    Don’t hesitate to ask section
    • This field is for validation purposes and should be left unchanged.

    By submitting my details on this form, I consent to being contacted by a member of the SBL Accountants team by email or telephone. Privacy Policy