VAT & Pre-registration Costs

The FTT case of SM Development North West Ltd saw a VAT dispute about whether the company could reclaim VAT on purchases made before it was officially VAT registered. The company, a building contractor, registered for VAT in August 2022 but tried to claim back over £68,000 in input tax on its first VAT return, much of which related to goods and services bought before registration.

HMRC checked the claim and refused most of it for two main reasons.

• First, the rules say you can only reclaim VAT on goods bought before registration if you still have them when you become VAT registered (and they haven’t been used up). In this case, the company admitted it had already used all the stock before its registration date, so it didn’t meet this requirement.

• Second, to reclaim VAT, you need proper VAT invoices or, in some cases, alternative evidence. The company only provided a few invoices, many of which were incomplete or incorrect, and didn’t supply enough alternative proof like bank statements or a proper VAT account, even after HMRC asked several times.

The Tribunal agreed with HMRC: since the goods were already used up before registration, and the company didn’t provide the right paperwork, it couldn’t reclaim the VAT. The appeal was dismissed, reinforcing that businesses must keep proper records and follow the rules on pre-registration VAT if they want to recover input tax.