Businesses completing their first VAT return may be able to reclaim the input tax incurred on services received before their date of VAT registration. Stringent conditions apply and different timelines exist for goods and services.
Where the purchase is of goods these must have been made in the four previous tax years before registration. The goods must have always been used in the business and are still owned on the first date of registration.
In this case the usual rules apply to such claims: VAT must have been charged by the supplier, and a tax invoice is held to support the claim. The definition of goods includes both stock and assets. The VAT which can be claimed is the amount paid to the supplier.
As to the time period for purchases of services, this is limited to six months before VAT registration.
An important point to note is the goods or services must not have been consumed, ie fully used, before the date of registration. As it is sometimes difficult to establish if this condition has been met, generally unless it is clear that the cost of a pre-registration service was fully used against supplies made prior to registrations, businesses can reclaim the VAT paid on its purchase.
Furthermore, VAT on ‘continuous charges’ such as bookkeeping and accounting services count as supplied at the date the invoice is issued and not when the services are carried out. Therefore VAT paid on these invoices within six months before registration can also be reclaimed.
If you would like our help in assisting you with the calculation of pre-registration VAT or in any other VAT-related matters please let us know.
21/08/2017
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