Recovering VAT incurred before registration of a company

HMRC VAT Notice 700 is a guide to the UK VAT rules and procedures.

Paragraph 19.7 relates to record keeping for VAT purposes and provides what is acceptable evidence for recording your input and output VAT. Under that paragraph, “you must keep a record of all taxable supplies that you receive for your business.” 

The question is, is it possible to reclaim VAT paid on goods and services that you received before you were registered for VAT? Any VAT paid on goods and services that you received before you registered for VAT isn’t input tax. However, when you become registered you can treat this VAT as though it were input tax if you hold acceptable evidence in accordance with paragraph 19, and can meet the conditions in paragraph 11.2 and 11.3. That says:

11.2: You can treat the VAT on goods that you obtained or imported before you were registered as if it were input tax. If:

• the goods were supplied not more than 4 years before the business was registered or was required to be registered
• the goods were supplied to the person who is now registered for VAT
• the goods were obtained for the business which is now covered by the VAT registration and related to its taxable activities – if the services related partly to taxable activities and partly to other activities, you must work out what proportion of the use of the services related to the taxable activities
• you still hold the goods or they have been used to make other goods which you still hold
• you compile a stock account of the goods – this must show the quantities of goods and the dates when you obtained them, and if you used any goods to make other goods, or disposed of them after you were registered for VAT, the account must give details, with dates.

11.3 You can treat the VAT on services that you received before you were registered as if it were input tax. If:

• the services were supplied not more than 6 months before the business was registered or was required to be registered
• the services were supplied to the person who is now registered for VAT
• the services were received for the purposes of the business which is now covered by the VAT registration and related to its taxable activities – if the services related partly to taxable activities and partly to other activities, you must work out what proportion of the use of the services related to the taxable activities
• the services were not related to goods which you disposed of before you were registered (such as repairs to a machine which was sold before registration)
• you compile an account of these services, this must describe the services and the dates when you received them and, if the services related to goods which you disposed of after you were registered for VAT, the account must give details, with dates.

It may be possible for companies to reclaim any VAT that has been paid on goods and services provided before it incorporated.

11.4 If your business is a corporate body (a company, charity or association), the rules do not allow you to reclaim any VAT on goods or services obtained before the body was incorporated. But you can treat this VAT as input tax if the:

• rules in paragraphs 11.2 or 11.3 would allow you to do so if the goods or services had been supplied to the person who is now registered for VAT
• goods or services were obtained or imported by a person who became a member, officer or employee of the body
• person was reimbursed for the full cost
• person was not a taxable person at the time of the supply or importation

Sources: HMRC VAT NOTICE 700