If you recently registered for VAT, you may be able to claim money back on your pre-VAT registration expenses. We’ll explain the rules and restrictions that exist and how you can apply to claim back pre-registration VAT.
VAT registration - the basics
What is VAT?
VAT stands for ‘value added tax’ and is a consumption tax levied on most goods and services sold in the UK, essentially representing the ‘value added’ at each stage of production or distribution of goods and services.
The standard rate for VAT is 20%, with a reduced rate of 5% for certain goods and services, and a zero rate for others. Check the latest rates and categories on the HMRC website to stay updated.
What are the benefits of registering for VAT?
The main benefit of registering for VAT is that you can reclaim it on the goods and services you purchase. If the VAT on your expenses is higher than the VAT you charge customers, you can claim it back. This is especially beneficial if you invest in expensive items like machinery, plant and IT as you may be able to reclaim a large amount of VAT.
This can also be useful for pricing as other VAT-registered businesses that buy your products and services will also be able to reclaim the VAT from HMRC, so your selling price is still competitive.
Another benefit is credibility, as being VAT-registered appears more professional and some companies and clients may only work with VAT-registered businesses. Plus, if you run a small business, registering voluntarily and displaying a VAT number can help make it appear larger than it is.
Can you reclaim VAT on purchases made before registering?
Businesses don’t necessarily need to register for VAT straight away. It only becomes mandatory if your total VAT taxable turnover for the last 12 months was more than £85,000 (the VAT threshold) or you expect your turnover to exceed £85,000 in the next 30 days. It’s also mandatory if you and your business are based outside the UK and supply goods and services to the UK or will do so in the next 30 days (regardless of turnover). It’s important to note that this threshold is expected to rise to £100,000 in the future.
You’ll still pay VAT on most of your pre-VAT registration expenses, but it is possible to reclaim the tax on many of these goods and services as long as you follow certain rules. You can also make a request to HMRC to reclaim VAT on purchases you made before registering. It’s possible to backdate goods from up to four years before VAT registration and services from up to six months before this date.