VAT and Pre-Trading Expenses

Are you aware of the view change ?

Time For A RethinkOK – so this is not the most exciting topic ever, but one to know about.

Your business must be registered for VAT when your rolling 12 month turnover reaches £82,000 although you should register if you believe your rolling 12 month turnover will go over that threshold.

When you first register your business for VAT purposes, you can claim back the VAT on goods acquired within the previous four years as long as the items were used in the business and you still have them as working assets (or stock) in the business. The same rule applies to service but in the previous six months if the services were still ongoing at the time of VAT registration and the service was not fully consumed at the date of registration.  The VAT cost could then be reclaimed on the first VAT return (standard and flat rate scheme). Depending on the business, this would make a nice cash flow injection. This is all in VAT Regulations SI 1995/2518, reg 111 if you want to check it out.Character Thinking Shows Thought And Doubt

But, the VAT man has now changed his view on how much VAT can be reclaimed – OK so they changed their view in 2011, but it’s not really been publicised. For assets, the value of the asset would need to be written down in relation to its usage, and then claim the proportional VAT on that VAT

Let’s say you purchased £10,200 (includes £1700 of VAT) of printing equipment back in October 2013 and you’d expect a 7 year life from those assets. You registered for VAT in October 2015 so you have had 2 years use out of 7 of the assets. In the old days you would have claimed all the £1700 of VAT, but now, you would only be able to claim 5/7ths of it so a reclaim of £1214 can be made on the first VAT return.

It is only a change of view and not written down in VAT notices, indeed the government website still talks about reclaiming all the VAT cost. I guess it depends on your VAT inspector. But forewarned is forearmed, so just be aware of this for when you may register for VAT.


If you find this blog interesting / useful, please share with others and if you think this is going to affect you, then contact us for help. 01344 669084









About the Author