Pre-registration fixed assets VAT allowed in full: HMRC has issued R&C Brief 16/2016 http://tinyurl.com/h77xnw5 to clarify the position about VAT on fixed assets purchased before the date of registration.
Over-zealous VAT officers…
It seems that in recent years, some over-zealous VAT officers have been issuing assessments for VAT on fixed assets acquired before registration. The reason given was that the assets were already “used” before registration, so the business was only entitled to claim that proportion of the VAT that represented the usable “life” of the asset after registration.
How is it calculated?
For example, suppose a business bought a new van on 1 January 2013 for £20,000 plus VAT @ £4,000. The business registers for VAT on 1 July 2016. It claims all of the VAT paid on the van on its’ first VAT return. An officer visits to inspect the first return VAT claim and issues an assessment for some of the VAT paid on the van. The officer takes the view that the van will be usable for 20 years, so calculates the assessment as follows:
£4000/20 = £200 for each year
£200 x 3.5 years use pre-registration: £700.
HMRC has confirmed that VAT on fixed assets purchased within 4 years can be recovered in full. Businesses can claim any VAT paid on such assets in the following situations:
- the business has reduced the VAT it deducted on fixed assets, to account for pre-EDR use
- HMRC has raised an assessment of tax to account for pre-EDR use of fixed assets
- HMRC has reduced a repayment claim to account for pre-EDR use of fixed assets
VAT claims can be made under the normal 4 year limit under the procedure in VAT Notice 700/45: How to correct VAT errors etc.
Normal VAT recovery rules apply
Remember, though, that if your business or your client’s business is partly exempt or the asset is used for non-business purposes, then they may not be able to claim pre-registration VAT on fixed assets under the normal rules. See VAT Notice 700, section 11 for the basic rules about VAT on pre-registration costs: http://tinyurl.com/n8f4fbq.
November, 2016