My client just registered VAT. I know he can claim back 4 years’ VAT on the purchase before VAT registration. But I found there was a dilemma – he has included all these expenses in his previous years’ self-assessment. If he claims VAT again, he claimed twice – in VAT form and income tax form. I mean:
If he spent £360+VAT =£432 before VAT registration, he had £432*20% =£86.4 tax deduct. If he claims VAT again now, he will gain £72 VAT, this will give him £14.4 more tax advance if he had been VAT registered all along.
Can we claim this kind of VAT if we adjust his self-assessment by using the net amount of his last years’ spending?
You can generally reclaim VAT on goods you bought up to 4 years before you registered for VAT and services you bought up to 6 months before you registered as long as the following conditions are met;
The goods were bought by you as the entity that is now registered for VAT The goods are for your VAT taxable business purpose The goods are still held by you or they have been used to make other goods you still hold
You cannot reclaim VAT on these goods;
Goods that you have completely used up before you registered for VAT (e.g. petrol, electricity or gas) Goods that you have already sold or supplied before being VAT registered Goods that relate to supplies you make that are exempt from VAT
In that case i do not understand how he could have claimed expenses if the goods are still inventory? if this was a mistake, then corrections could be made to the returns.