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Reclaiming pre-registration VAT input tax

If you have been trading for some time before you register your business for VAT don’t forget to consider your option to reclaim VAT on goods and services purchased prior to your registration date.

For example, if you are required to register for VAT from 1 January 2014, you only need to pay VAT on taxable supplies you make from that date. However, if you had bought goods or services prior to 1 January you may be able to reclaim the VAT you paid on them. You can generally reclaim VAT on goods you bought up to four years before you registered for VAT, and services you bought up to six months before you registered.

You can reclaim VAT on goods you bought or imported no more than four years before you were registered for VAT if all the following are true:
  • the goods were bought by you as the entity that is now registered for VAT (for example, the individual, business or organisation)
  • the goods are for your VAT taxable business purposes, which means they must relate to VAT taxable goods or services that you supply
  • the goods are still held by you or they have been used to make other goods you still hold.
You can't reclaim VAT on any of these goods:
  • goods that you've completely used up before you registered for VAT (such as petrol, electricity or gas)
  • goods that you have already sold or supplied before being registered, or have used to make goods you have sold or supplied before being registered
  • goods that relate to supplies you make that are exempt from VAT
The word 'goods' includes goods that are intended for resale, and also goods that you keep as assets, such as computer systems, shop fittings, office equipment and furniture, tills, vans and other equipment. It also covers anything else you've bought that isn't a service, so it includes consumables such as stationery.

You can reclaim VAT on services you bought during the six months before you registered for VAT if both the following are true:
  • the services were bought by you as the entity (for example, the individual, business or organisation) that is now registered for VAT
  • the services are for your VAT taxable business purposes, which means they must relate to VAT taxable goods or services that you supply
You cannot reclaim VAT on any of these services:
  • services that relate to goods you disposed of before you were registered for VAT - for example, repairs to a machine you sold before you were registered
  • services that relate to goods or services you supply that are exempt from VAT
Examples of services you might have paid for when starting your business are legal and accountancy fees, services relating to setting up your computer and other equipment, and fees and services relating to your premises.

Don’t forget that if you make a claim to recover past VAT paid, the input tax recovered will effectively reduce the cost of goods and services that you have claimed tax relief on in past years. This will effectively increase your taxable profits in the year you make your claim. Even taking this tax adjustment into account it is still worth making a claim.