HMRC have announced the publication of a Revenue and Customs Brief 16 (2016): treatment of VAT incurred on assets that are used by the business prior to VAT registration.
This signals the end of a long running dispute where HMRC had decided that only a proportion of VAT on assets on hand at registration could be recovered based on use made of that asset before registration.
A case on this issue was taken to the brink of a tribunal on this very point, with HMRC withdrawing days before the hearing. Richard Staunton, VAT Director at Francis Clark Tax Consultancy, wrote an article on his case for Taxation magazine back in March 2016, and at that time, was waiting for reasons why HMRC had withdrawn.
Interestingly, the RCB states that HMRC’s policy had not changed through the period, which is at odds both with Richards case and a large amount of taxpayers who incurred bills and penalties from HMRC on this very point. The RCB, by stating that all VAT can be recovered, now returns much needed sanity and clarity to the issue
As a firm, we are proud that we took the case on for the taxpayer, especially as we agreed not to charge a fee, and probably contributed in some part to the 180 degree change of heart. It shows that HMRC can be made to see sense when they make mistakes even at policy level, although it can take some time.
If you or someone you know have had pre-registration VAT disallowed you should now be able to reclaim that VAT back and be repaid any penalties incurred. If this does apply to you we would urge you to contact HMRC as soon as possible.
Francis Clark Tax Consultancy