If you need to register your business for VAT you will be able to reclaim VAT charges on any services that were provided to your business during the last 6 months and on goods on any purchases you bought during the last 4 years. You are entitled to a reclaim the VAT charges on your first VAT return only if you bought and used the items for business purposes and still owned them as business assets or stock on the date you registered for VAT.
It is important to note however that the VAT man has altered his opinion on how much VAT you can actually reclaim if you are in this particular situation. Accordingly, you should dismiss any assets used for your business during the period prior to VAT registration. The below example should help explain this a little better.
An Example
Brad owns a business that transports livestock. He purchased a lorry for the price of £90, 000 on April 1st 2012 and VAT worth £15, 000 which he predicts he will use for at least 10 years. VAT registration of his business was effective as of April 1st 2015, 3 years into the expected 10 year’s lifespan of his lorry.
As the first 3 years of the lorry’s lifespan were not used for sales with VAT charged, Brad was advised by the VAT helpline to reclaim for 7/10ths of the lorry’s VAT charges, which worked out as £10, 500. (Calculated as 7/10 x £15, 000).
Since 1973 when VAT was first introduced in the country, the rule has been that you could reclaim all of the VAT on any assets in use at the date of registering for VAT. With the example above Brad would have claimed the full £15, 000 following the original ruling, rather than the £10, 000 he actually claimed back.
VAT leaflets and notices published and circulated by the HMRC however, do not include this new take on the laws of VAT. Therefore, you do not have to make any alterations to your claims for VAT, if you have reclaimed the VAT for all goods (a maximum of 4 years old) held from the date you registered your business for VAT.
Please talk to us without delay if you believe, because your turnover for the past 12 months will be in excess of £82, 000*, that you will have to apply for VAT registration soon.
*The threshold changes almost every year, so please check for current level here.
