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Hi all
My client incurred £2,500 VAT on legal advice in relation to a market-rate loan to a foreign charity with similar aims. The originally intended recipient was a French charity so we correctly did not recover the VAT. However my client ultimately made the loan to a US-based charity and now wish to claim back the VAT in full per SI 1999/3121.
Is this correct and what is the procedures to follow.any information would be much appreciated.
Where you incur input VAT attributable to an intention to make an exempt supply and, before that intention is fulfilled, you use the costs in making a taxable supply, reg. 109 SI 1995/2518 allows for adjustment of the original attribution and recovery of the VAT previously disallowed. The time limit for making the adjustment is 6 years from the first day of the accounting period in which the original attribution occurred.
The provision of credit is an exempt supply to UK/EU. However certain exempt supplies when provided to non-EU counterparties are specified as allowing recovery of related costs [SI 1995/2518 Reg 103 and SI 1999/3121 refers]. Thereforeyou can recover the VAT incurred in what turned out to be a loan to a non-EU counterparty.
One would need to consider carefully whether the loan constituted a non-business activity which would not allow recovery of associated VAT on costs.
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