TaxCorporate TaxHMRC changes VAT reclaims interpretation

HMRC changes VAT reclaims interpretation

Businesses claiming VAT refunds for assets and stock already held at the time of VAT registration, can now only do so on a pro rata basis

BUSINESSES are to lose out on VAT refunds after HM Revenue & Customs changed its interpretation of key rules governing the payouts.

For the past 43 years, businesses registering for VAT already holding stock and assets for use after the registration date have been able to reclaim the full amount of VAT paid on those goods. Now HMRC is applying the rule on a pro-rata basis, meaning many businesses out of pocket.

HMRC now says the input VAT should be reduced to take into account the use that has been made of the goods before the VAT registration date.

By way of illustration, someone who has owned a van for a year prior to their VAT registration and plans to use it in the course of their business for the next three years would only receive VAT back for the three years post-registration. Previously, they could have claimed for the full amount.

ACCA head of taxation Chas Roy-Chowdhury said such a change is “mean” and that greater publicity should have been given to the move in any case.

“If someone was waiting the registration to come through, in the past that has not been done pro rata, they’ve allowed full recovery of the tax,” he said.

“It’s pretty mean if they’ve changed the interpretation on that because clearly if a business is waiting for its VAT registration, it’s not in its own hands to speed that process up. It’s something that will affect businesses and their cashflow, although they won’t be charging VAT until they receive their registration.”

A spokesman for HMRC said: “Where a business has goods and assets on hand at its date of VAT registration, an adjustment ought to be made where these have already been used. Where such adjustments have not been made, the business should do so on their VAT return or make a voluntary disclosure to HMRC.”

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