VAT Registration and VAT Reclaims

VAT (Value Added Tax) can be a bit of a head-scratcher, especially for small companies. One question that often pops up is about claiming back VAT on purchases made before you’ve registered for VAT or even before your company was formed. In this blog, we’ll break down this topic, explain the rules around VAT registration, and weigh up the pros and cons of registering for VAT before you have to.

Claiming VAT Before You’ve Registered

When you register for VAT, you can actually claim back VAT that you’ve paid on certain purchases made before you registered. This is known as ‘pre-registration input VAT’.

Here’s the deal: you can claim VAT on goods you bought up to four years before your VAT registration date and services you received up to six months before that date. You’ll need to claim this on your first VAT return after you’ve registered.

But, there’s a catch. The goods or services must have been for your business, and they must be related to the VAT taxable work you’re now doing. Plus, you can’t claim VAT on goods or services that you’ve sold before you registered for VAT.

Claiming VAT Before Your Company Was Formed

If you were running your business as a sole trader before forming a limited company, you can still claim VAT on costs from before your company was formed. The goods or services must be related to your current business and used to make VAT taxable supplies.

Registering for VAT

You must register for VAT if your business’ total VAT taxable turnover for the last 12 months was over £85,000, or if you think it will go over that amount in the next 30 days. But, if your turnover is less than £85,000, you can choose to register for VAT voluntarily.

The Upsides of Voluntary VAT Registration
  1. Claiming VAT: Once you’re registered, you can claim back VAT on most goods or services your business buys.
  2. Looking the Part: Being VAT registered can make your business seem bigger and more established.
  3. Doing Business: Many suppliers and organisations prefer to deal with companies that are VAT registered.
  4. VAT Refunds: If your VATable costs are higher than your VATable sales, you could get money back from HMRC.
The Downsides of Voluntary VAT Registration
  1. More Paperwork: Being VAT registered means more admin and bookkeeping.
  2. Price Hike: If your customers aren’t VAT registered, adding VAT to your prices could make you seem more expensive.
Wrapping Up

Claiming back VAT and registering for VAT voluntarily can have some great benefits, but it’s important to think it through. Always get professional advice to make sure you’re making the best decision for your business.

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