Pre-registration input VAT
For those who are not aware of the concept, this is VAT spent out on goods and services, purchased prior to a business registering for VAT. For years, this VAT has been claimable – up to four years before the registration date for goods; up to six months for services. Therefore a business buying a van, three and a bit years ago can reclaim the VAT on the first return.
A couple of years ago, HMRC introduced a new policy and changed their internal guidance, such that the VAT had to be depreciated. If the new van cost £10,000 three years ago, it might only be worth £4000 today. In short, you could only reclaim VAT on the present value. They sneaked the change in, simply by imposing it on businesses; they didn’t have the good grace to tell anyone and didn’t even bother to change the main VAT guidance in which, clear as day, they gave businesses carte blanche to claiming it back! They even defended their position in defiance of a legal challenge to the Tax Tribunal, but only as far as the Court Room steps, as it were. A few days before the case was due to be heard, HMRC backed down. Still no apology, still no explanation.
Much comment and lobbying was carried out by professionals on ‘this side of the fence’, in particular members of the JVCC (Joint VAT Consultative Committee). HMRC did themselves no favours by insisting that there was no change in policy and that this was always the case. I fail to see how anyone can issue blatant fibs, and still feel as if they have any credibility. Getting to the point, HMRC have now had a change of heart and have announced that businesses can indeed reclaim VAT on such goods or services, without any adjustment for depreciation. (Revenue & Customs Brief 16/2016). [For now anyway!!]