VAT recovery on assets used before VAT registration

HMRC has issued their Revenue and Customs Brief 16 (2016): treatment of VAT incurred on assets that are used by a business prior to VAT registration.
The brief confirms that, subject to the usual rules on partial exemption, capital items, etc. VAT on services received within six months of the registration date and used in the business is recoverable in full. The VAT incurred on goods is deductible to those that are still available at the date of registration, as well as the VAT incurred on fixed assets purchased within four years of the date of registration is recoverable in full, provided the assets are still in use by the business as at  the date of registration.

Why does it matter?

This brief now clarifies HMRC’s policy position. Over the last couple of years, some HMRC officers had incorrectly insisted that tax payers depreciate the original cost of their capital assets to reflect usage prior to VAT registration, insisting (incorrectly) that HMRC policy only permitted the recovery of VAT on the depreciated value.

Please check to confirm whether you have ever been in that position. If you have, you might be entitled to make a windfall claim. This brief confirms that HMRC will accept error correction claims where the rules have not been followed correctly by HMRC or the business, including where HMRC had previously raised VAT assessments.

For further information about this, or to discuss its implications for your organisation, please contact Thomas Mobee on 020 7556 1320, or your usual Buzzacott contact

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