Do you need to register for VAT right away? 

Businesses in the UK are required to register for VAT when their turnover exceeds £90,000 over a 12-month period, or if they expect to exceed this within the next 30 days. However, even if your business isn’t VAT registered yet, you’ll likely still pay VAT on most goods and services you purchase for your business. The good news? If you later register for VAT, you may be able to claim back this VAT on qualifying purchases. 

How far back can you reclaim VAT on purchases? 

There is time limits for reclaiming VAT paid on purchases before registering, and these limits differ depending on whether the purchase was for goods or services: 

Goods: You can reclaim VAT on goods purchased up to 4 years before registration, provided they are still owned, in use, or in stock. This includes goods used to produce other goods that are still in stock. 

Services: You can reclaim VAT on services purchased up to 6 months before registration, as long as they relate to your business. 

What can you reclaim VAT on? 

To reclaim VAT on pre-registration purchases, they must meet certain criteria: 

Business use: The purchases must relate directly to your business activities and used in the delivery of goods or services. For example - If you bought equipment or materials used exclusively for your business, you may be eligible to reclaim the VAT. 

Still in use or stock: For goods, they must still be in your possession or used for your business. This can include equipment, raw materials, or even items used to create other products you still have in stock. 

You must have receipts and/or supporting documentation for any of these purchases, that will be attached to the VAT return submitted at HMRC. 

Here are some examples: 

Let’s consider a practical example. Suppose you purchased a computer for your business two years ago, paying £2,400 (including £400 VAT). At the time, you weren’t VAT registered. Now that you’re registered for VAT and you’re still using the computer for business purposes, you can claim back the £400 VAT. 

Similarly, if you paid for accounting or professional services six months before registering, and those services were necessary for setting up or running your business, you can reclaim the VAT on those expenses. 

Key Points to Remember: 

• VAT can only be reclaimed on purchases that relate to your business now registered for VAT. 
• Goods must still be owned, in stock, or in use for business purposes. 
• The time limits are 4 years for goods and 6 months for services. 
• Proper documentation is essential for successfully reclaiming VAT. 
• Failing to register for VAT at the correct time can lead to penalties, so monitor your turnover carefully. 

Final Thoughts 

Reclaiming VAT on pre-registration purchases can significantly help with your cash flow. We recently assisted a client in reclaiming up to £17,000 back in VAT paid on pre-registration purchases! 

If you’re unsure about the reclaiming VAT or need help preparing your VAT return in line with Making Tax Digital, consulting with an accountant can make this process much smoother. 

Got any questions about VAT registration or reclaiming VAT? Reach out to us today and we’ll be happy to help!