Not all new businesses need to be VAT registered straight away. You may decide not to register for VAT while you have a low turnover and are still finding your feet. If you decide not to register, you will need to pay tax on any goods or services that you purchase for your business. But what happens if you decide to become VAT registered further down the line?
In this article, we’ll explore how you can reclaim your VAT on purchases made before registration.
How far back can I reclaim VAT?
If you’ve recently become VAT registered, you can reclaim VAT on some goods and services you bought before this point, but there is a time limit:
On goods, you can reclaim VAT up to 4 years after you made the purchase.
For services, you can reclaim VAT up to 6 months after the purchase.
Which goods can I reclaim VAT for?
When reclaiming VAT for goods, they must have been bought specifically for business use and are still owned, in stock, or used. That includes goods you bought to make other goods that you still have.
For example, you bought a laptop 3 years ago to help you run your business. At the time you weren’t VAT registered, so paid a cost of £1,000 + VAT, for a total of £1,200. You have now registered for VAT, still use the laptop for business purposes and have retained your original receipt. You’ll be able to claim back the £200 in VAT that you paid on top of the cost of the laptop.
Which services can I reclaim VAT for?
You can claim VAT back for services in the 6 months before you registered for VAT, providing that those services are related to your business.
Are there any exceptions on reclaiming VAT?
Not all goods and services are eligible to reclaim VAT on. These include goods that you’ve used up, such as petrol or electricity, and goods that you have sold or supplied before you registered for VAT. There are also restrictions for services, including any services that relate to goods that were disposed of before VAT registration.
How do I reclaim VAT incurred before registering?
Now you’ve identified which services and goods you can claim VAT back on, you’ll need to provide proof of cost and date of purchase, as well as evidence that they are still relevant for your business today.
These items include:
Invoices and receipts.
A description of what the goods or services are.
Date of purchase.
A summary of how they still relate to your business.
The next step is to submit your claim. You need to do this on your first VAT return post registering and any claims must relate to your business purpose. In short, the goods and services you’re claiming for need to be related to the goods or services you provide.