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VAT Inputs (reclaims) Re: Pre-Registration, Pre-Incorporation & Post Deregistration Claims.

October 4, 2016 VAT 0 Comment

VAT Inputs (reclaims) Re: Pre-Registration, Pre-Incorporation & Post Deregistration Claims & Guidance based on UK practice

Background

Generally only someone who is registered for VAT can exercise the right to deduct input tax. However, there are certain circumstances before registration and after deregistration when relief from VAT is permitted.

Pre-registration

Where a business buys goods or services before it registers for VAT to support taxable business activities it can recover the tax provided that:

  • In the case of goods (either stock for resale or fixed assets), the goods remain on hand at the date of registration and will be used in the newly registered business.
  • In the case of services the supply was made not more than six months before the date of registration. Six months represents a period in which it is deemed that services obtained will relate to business activity carried on at the time of registration.

The amount of tax that can be recovered is the amount that would have been deductible had the business been registered at the time the tax was incurred. You should consider partial exemption and non-business restrictions when you calculate the amount of tax to claim.

A business may not use these rules to recover VAT on supplies that were purchased for non-business or private purposes.

This treatment will only arise if, at the time of acquisition, the business intended to make some business use of the capital item such as making exempt supplies or taxable supplies below the registration threshold.

Pre-incorporation

A limited company cannot register for VAT until it is formally incorporated. Goods or services may have been supplied to the employees setting up the company before then.

A company can claim VAT on those goods and services if the tax relates directly to the business to be carried on by it following incorporation and registration for VAT. The six-month limit in respect of services and the four year limit for goods also apply to pre-incorporation claims.

VAT incurred pre-registration can only be claimed to the extent that, at the time the tax was incurred, the relevant goods and services were used, or to be used, to make taxable supplies.

Post-deregistration

The right to deduct input tax stops at the date of deregistration. VAT can be reclaimed where services supplied after the date of deregistration relate to the business activity carried on while the business was registered.

This also applies when the deregistered business did not claim input tax to which they were entitled while registered. It does not apply to goods supplied after the date of deregistration. Tax cannot be claimed beyond the capping limit for the period in which it was incurred.

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For related enquiries, further clarification and assistance with Tax matters contact Joe Cunnane at TRA Professional Services

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Joe Cunnane Practice Owner TRA Professional Services       Qualifications:  FCA Chartered Accountant & AITI Chartered Tax Advisor Joe has over 20 years experience working in both private practice and industry ... Read More »