Voluntary VAT Registration – What effective date of registration should I choose?

[Greengiant]

Hi,

So I’m looking at registering my company for VAT. The business has been incurring start up costs from November 2015 and has started selling as of August 2019. 

To date the expenses of the business are £25k+ and the income approx £1k. 

For this reason I wanted to reclaim the VAT I have already paid in relation to all the start up costs over the last 3-4 years. 

I’m aware you can only backdate expenses relating to services 6 months before the registration date. I’m also aware you can register the effective date on any date within the last 4 years. 

Which got me thinking if i put the effective date of VAT registration as the date I started incurring costs in November 2015, would I be able to reclaim the costs incurred from 2015-2019?

In effect all the allowable service expenses I have paid for in the last 4 years would then be refundable. 

I understand VAT would be liable on any sales made from 2015-2019, but the amount of start up expenses which are eligable for VAT refunds should outweigh this considerably. 

I’d be grateful if you could let me know if my thinking is correct and it is worth putting  the date as November 2015 or if I’m mistaken, in which case I’d be grateful if you could let me know what the best date would be. 

[VAT-adviser]

I agree to your understanding that if you backdate, then output tax will be charged on the sales and note payments received are assumed to include VAT and hence 1/6 of receipts is accounted as output VAT. An alternative to recover this output tax from our clients is to re-issue the invoices or issue VAT only invoices (some clients are o with this if they can recover VAT ).

You can indeed get an earlier date of registration (up to 4 years from now) if you can convince HRMC. This means you can claim upto 8 years of input VAT on goods ( 4 years registration date backdated plus the usual 4 years claim on goods) and for services – 4 years plus 6 months using the same rationale.  The provisions for back-dating effective date of registration are contained in the VAT Act 1994, Schedule 1, paragraph 9(a), and this entitles a person who is not, and is not required to be VAT registered to register for VAT if he can satisfy HMRC that he is in business and is making taxable supplies. 
 

[Greengiant]

@VAT-adviser cool thanks for the quick response that clears that up. 

[Author]

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