HMRC Clarify Position on Pre-Registration on Input Tax

HMRC have finally addressed the uncertainty regarding recovery of input tax on assets purchased prior to VAT registration.  Historically HMRC’s position was that  a fully taxable business was able to recover VAT in full on fixed assets purchased by that business within 4 years of the effective date of registration,  providing those assets were still “on hand” and in use by the business.

There was no published change of policy,  but following an update to the HMRC internal Input Tax Guidance Manual (VIT32000)  which advised that a business was required to apportion the VAT claimable on assets purchased prior  to registration,  HMRC officers have been challenging businesses which have recovered  the VAT on the asset purchases in full.

Action should be taken to review  VAT returns containing pre-registration input tax, submitted, particularly those  approaching 4  years since the submission deadline.  The time limit for correction of errors is :-

• 4 years from the due date of the relevant VAT return where VAT deduction has been restricted in error by the business, or HMRC has incorrectly reduced a repayment
• 4 years from the date the assessment was paid where HMRC have raised an assessment that incorrectly restricts VAT deduction.

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