VQOTW: Input tax on re-registering for VAT

My client is a bathroom fitter and was VAT registered from January 2017 to March 2018 as he had a contract with a large developer to fit en-suites into new-build dwellings. His supplies were mostly zero-rated and he received repayments of VAT from HMRC. He bought a new commercial vehicle and specialist tooling in August 2016 on which he recovered the VAT as pre-registration input tax. On his final return, for the tax period ending 31st March 2018, he accounted for VAT on all the assets and stock on hand as a deemed supply.

The client has now been approached by another developer to install bathrooms and will look again to VAT register in order to recover his input tax. His effective date of registration (EDR) will be 1st April 2019. We are happy that he can recover pre-registration input tax on new tooling and stock on hand at registration that he purchased earlier in 2019, but can he also recover the input tax on the commercial vehicle and the tooling purchased in 2016 as pre-registration input tax again?

Regulation 111 entitles businesses that buy goods and services prior to VAT registration, to be used for its taxable activities after registration, to recover the VAT as input tax provided that:

  • the goods, whether stock for resale or fixed assets, remain on hand at the EDR and have been bought within four years of that date, and
  • In the case of services, the supply was received within six months of the EDR and those services haven’t been supplied on as part of a supply made prior to registration; weren’t services on goods no longer on hand at registration, and weren’t services on assets acquired more than four years prior to registration.

Your client cannot recover the VAT on the original purchase of those goods again, but HMRC confirm in their Input Tax manual (link below) that when a business re-registers, provided those goods continue to be used in the course of his business, your client can treat the VAT accounted for on the deemed supply of the assets as input tax. The evidence required is proof of payment of VAT on the deemed supply on deregistration. The VAT should be reclaimed on your client’s first period return when he re-registers. https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit32000

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If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at competitive rates.

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Priyesh has worked as a VAT Compliance Officer for HMRC since 2013 prior to joining Croner Taxwise. He initially worked in Small and Medium Enterprises before moving on to Wealthy & Midsize Businesses in 2014 where he gained a broad understanding of VAT and trained new VAT entrants.

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