Claiming Input VAT from expenses prior to VAT registration

[SHARPYWAN]

Hi,
I started a business in Dec 2017, but didn't register for VAT until i hit the £85k threshold in April 2018.
I have tried to claim back vat paid on lots of equipment etc which is still in the business, and that's fine. However the VAT people have now come back to me and said i can not claim VAT back on the 4 months rent, gas and electric prior to vat registration? is this right, as i'm struggling to find where it says that?
thanks

He referred me to this section below, but again i can't see where it says i can't claim for rent and electricity, gas etc?

11.3 Conditions for recovering VAT incurred on services before you were registered
You can treat the VAT on services that you received before you were registered as if it were input tax. If:

• the services were supplied not more than 6 months before the business was registered or was required to be registered
• the services were supplied to the person who is now registered for VAT
• the services were received for the purposes of the business which is now covered by the VAT registration and related to its taxable activities - if the services related partly to taxable activities and partly to other activities, you must work out what proportion of the use of the services related to the taxable activities
• the services weren’t related to goods which you disposed of before you were registered (such as repairs to a machine which was sold before registration)
• you compile an account of these services, this must describe the services and the dates when you received them and, if the services related to goods which you disposed of after you were registered for VAT, the account must give details, with dates

 

[Scalloway]

From this page, which you will note is headed moving the goalposts

https://www.taxation.co.uk/Articles/2015/06/05/333211/moving-goalposts

The time window for services is limited to six months before registration and the service cannot have been consumed before registration.

So the rent and electricity, gas etc will have been consumed prior to registration and so cannot be claimed according to current HMRC thinking.

 

[UK Contractor Accountant]

changed back again in VAT Brief 16/16. I would challenge the VAT Officers refusal citing the Brief.

https://www.gov.uk/government/publi...sed-by-the-business-prior-to-vat-registration

 

[SHARPYWAN]

yes, i was aware of the 6 month rule for services etc. however they are now telling me that i can not claim for rent,gas,electric, car hire etc for anything right up to the date of vat registration, which i believe is wrong. they say in effect the rent the months before registration and gas electric etc are fully consumed before registration? surely a service can not be classed as consumed the same as a good or product is?

 

[UK Contractor Accountant]

As above refer them to their own brief 16/16 which states no adjustment required for consumption prior to registration.

 

[SHARPYWAN]

Thanks. it does seem pretty clear doesn't it.
It's tricky, as i don't want to antagonise them, as the potential fine % for other genuine errors may increase as a result

 

[SHARPYWAN]

i think the bit they are clinging to is

• VAT on services received within 6 months of EDR and used in the business at EDR is recoverable in full

How do you prove if gas and electric and rent in the 6 months prior to EDR is still used post EDR?

 

[UK Contractor Accountant]

How do you prove if gas and electric and rent in the 6 months prior to EDR is still used post EDR?

You dont have to IMO.

Just write back to them with reference to their own brief 16/16 stating that the services related to warehousing and stock holding costs prior to EDR and sold after you were registered.

 

[UK Contractor Accountant]

@lesvatadvice will probably be more clued up on this.

he should be along shortly to offer his opinion/advice

 

[spidersong]

The problem you should have with the gas and electric is that they're not services in VAT law. Schedule 4 (para 3) of the VAT Act says that they're supplies of goods. So since they've been consumed prior to registration they don't meet the conditions for recovery.

That being said most people in HMRC don't realise this, and if the officer's pointed you to the bits on services then obviously he doesn't either.

So I'd do as suggested, point out that there is no consumption of services (unless they directly relate to an already made supply such as work on sold goods, courier services etc.) adjustment needed as per their 'clarified' policy in 16/16 and ask for your repayment. If you want to be very kind you could just ask for the rent and any other 'proper' service elements, or you could just point out that services within 6 months are recoverable and see if they compound their errors by continuing to not realise that fuel and power are goods.

 

[SHARPYWAN]

This is the response i've had this morning.

Thank you for your emails which I have reviewed on behalf of Joe. Whilst I appreciate your comments regarding the pre-registration costs and why you believe why they should be allowable, I was hoping to provide some further clarification of HMRC’s viewpoint.

As well as being within 6 months from your effective date of registration, any pre-registration services where input VAT is being reclaimed must have a direct link to taxable supplies you have made or intend to make from your effective date of registration. Input tax that forms part of supplies made prior to your effective date of registration is not able to be recovered see VIT3200


From reviewing your VAT application form you have advised you applied for a Compulsory Registration as you were expecting to exceed the VAT threshold. I also note you advised us that your sales ledger shows sales from the date the business hit the VAT threshold. This indicates that the business was previously trading prior to VAT registration and was making supplies. Therefore it would be reasonable to expect that some of the VAT incurred in relation to rent and utilities would be attributable to those supplies which were made prior to registration and would not be recoverable.

 

[UK Contractor Accountant]

Therefore it would be reasonable to expect that some of the VAT incurred in relation to rent and utilities would be attributable to those supplies which were made prior to registration and would not be recoverable.

HMRC forgot to mention 'in full'

Therefore it would be reasonable to expect that some of the VAT incurred in relation to rent and utilities would be attributable to those supplies which were made prior to registration and would not be recoverable IN FULL.

Partial recovery needs to be agreed - negotiate

 

[SHARPYWAN]

Thank you all for your help, would you suggest 50% is fair?
Although i thought brief 16 was in place to stop these % calculations?

'Services must have been received less than 6 months before the EDR for VAT to be deductible. This time limit simplifies the rules and means you don’t need detailed calculations of the use before and after your EDR. '

 

[SHARPYWAN]

the document they sent to try and prove their point, i don't see anywhere where it does that?

• in the case of services the supply was made not more than six months before the date of registration. Six months represents a period in which it is deemed that services obtained will relate to business activity carried on at the time of registration.

Surely that just backs up my argument?