Can You Reclaim VAT on Purchases Made Pre-Registration?

16 Jan 2024
Maximilian Addison

Data | Software Engineer

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.

When can you reclaim VAT on purchases made before registering?

Whether you can reclaim VAT on pre-registration expenses will depend on when the purchases were made, what they were used for, and proof of purchase.

You can reclaim VAT on purchases made within the following time periods:

Four years for goods you still have, or goods used to make other goods you still have.

The goods must have been bought by you as the company that is now VAT-registered, and still be held by you or used to create other goods you now hold. Therefore, you can’t reclaim VAT on any goods that were sold or supplied before your registration. You also can’t make claims on goods that have already been completely used up, such as petrol, gas, or electricity.

Bear in mind that not all goods are eligible for VAT. You can see all VAT rates and exemptions on this page on the HMRC website.

Six months for services

The rules for reclaiming VAT pre-registration are similar for services. You must have purchased the service within the last six months of your registration date and it must have been bought by you as the company that is now registered. Again, some services are exempt from VAT so check the HMRC web page above if you aren’t sure whether a particular service qualifies or not.

The goods or services must be used for business purposes

You can only reclaim VAT on goods and services that you bought specifically for business use within the set time periods. For example, a laptop you still use for day-to-day company activities or the cost of travelling by train to a business meeting. You can see what HMRC considers to be allowable business expenses here.

You must have the original VAT invoices or receipts

This is why it’s very important to keep all paperwork when it comes to business costs. You won’t be able to reclaim pre-VAT registration expenses if you don’t have original copies of invoices and receipts that prove the purchase was made. You can see what makes up a valid VAT invoice here.

How can you reclaim VAT on purchases made pre-registration?

You can reclaim VAT on your first VAT return

Pre-registration expenses should be reclaimed when filing your first VAT return with HMRC. You usually need to do this every three months, and the deadline for submitting online is typically one calendar month and seven days later. That said, you may decide to submit your returns monthly to reduce the size of your VAT bill and keep on top of your cash flow. You can find out when your first VAT return is due by logging in to your online account with HMRC.

You will need to include the following information on your VAT return:

  • The date of the purchase: Remember that to reclaim VAT pre-registration, the purchase must have been made four months before your VAT registration date for goods and six months before for services.
  • The amount of VAT: Your receipts and invoices should denote the rate of VAT (typically 20%) and how much you paid when you made the purchase.

You may also need to provide supporting documentation, such as the original VAT invoices or receipts.

Claiming VAT back on pre-registration expenses could result in huge savings, especially if you spent large amounts in the early days of your business. This will improve your cash flow as you look to take your company forward.

Conclusion

Reclaiming VAT on purchases made before registering can save businesses money

However, there are certain restrictions on what can be reclaimed

As touched upon, you can only reclaim VAT on goods purchased four years before your registration date and services purchased six months before it. Some goods and services are exempt from VAT so you won’t be able to claim on those, and you can’t claim on goods that you no longer hold either. The same is true if you no longer hold goods that were made from goods you purchased within the four-year window — you must still have these to make a claim. 

Businesses should keep good records of their VAT purchases to make the reclaiming process easier

It’s absolutely crucial you keep regular, accurate records of all VAT purchases you make prior to your VAT registration, and all expenses after that. This will enable you to calculate how much money you’ll be able to reclaim and, most importantly, you must present receipts and invoices for any VAT you want to claim back from HMRC.

If you’re about to make a large VAT reclaim or think you’ll be doing so on a regular basis, then be sure to reach out. With Adsum’s Instant VAT Returns, we’ll advance this money to you within the hour, instead of the 30 days it can take HMRC to repay these funds. This helps prevent cash flow problems and ensures your business can keep investing and growing unencumbered by slow VAT repayments. 

Instant VAT Refunds
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