19 Apr

VAT on Pre-trading Expenses

When your business gets registered for VAT you can reclaim the VAT charge on goods you acquired within the previous four years, and on services provided to your business within the last 6 months. As long as you still held the goods (as stock or business assets) at the date of the VAT registration, you can claim back the VAT on your first VAT return.

However, the VAT man has recently changed how much you can reclaim in this situation. He now says that any use of assets in your business in the period before you registered for VAT should be discounted. See how this will work:


ABC Ltd is a logistics business. On 1 April 2013 they purchased a vehicle for £50,000 including VAT of £8,333, which they expect to use for 8 years. The business registered for VAT with effect from 1 April 2015, exactly 2 years from the purchase of the vehicle.

The HMRC VAT helpline advised ABC Ltd to reclaim 6/8ths of the VAT incurred on the Vehicle: £6,249 (6/8 x £8,333), as the first two years of the vehicles life were used for sales for which VAT was not charged.

Since the introduction of VAT in 1973 the rule has always been that ALL the VAT on assets in use at the VAT registration date could be reclaimed. In the example above ABC Ltd would have reclaimed the £8,333 in respect of his vehicle.

The new interpretation of the VAT law has not been included in the VAT notices and leaflets published by HMRC. So if you have previously reclaimed all the VAT on goods (up to four years old) held at the date your business became VAT registered, you don’t have to alter you VAT claims.

If you think you will need to register for VAT soon, as your turnover will exceed £82,000 for the last 12 months, then please get in contact with us.

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