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bigduckontax, Accountant
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We have just started a company. We are not yet supplying goods

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We have just started a company. We are not yet supplying goods and services as we are in the "set up" stage - creating systems that will be used across the business. As a result, we are paying a large amount of input VAT.
When we do start making supplies, which will be more than 6 months from when we started to pay for services, some will be exempt, some not. Most of our revenue (about 75% will be exempt).
The systems we are setting up are not specific to the VATable or exempt revenue, ie if we were to register as partially exempt we would be reclaiming a portion of the VAT. I have 2 questions:
1. Can we register for VAT before we start making VATable supplies? We want to so we don't miss out on claiming any of the input VAT paid during the set up period.
2. As most of our revenue will be VAT exempt, we won't be able to claim quite a lot of input VAT back if we set up as partially exempt. I was wondering if there is a way round this? For example, could we in fact set up two companies, one doing all the exempt business (biz A), one doing all the VATable business (biz B). All the expenses and input VAT would be paid by biz B, so it could be claimed back. Biz B would then charge biz B a nominal fee to use the systems. They would not be a group. Would this work?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Yes, it would, you could create two separate stand alone companies. I would suggest that you set these up from the very beginning. Your sole problem would be maintaining two different sets of books, but that is scarcely onerous if a lot of input tax is at stake. You clearly have VAT off to a T and realise that making exempt supplies means that only the proportion of input tax corresponding to the level of standard and zero rated supplies can be reclaimed. Remember that the turnover limit, currently 81K, only embraces standard and zero rated supplies so your 'biz A' might never need to register at all. One less item for which to maintain a separate ledger heading and one less quarterly return to be submitted!
Yes, you can register for VAT before you actually start to make supplies, but the VAT Registration Office may jib at this because any prior registration input tax on expenses disbursed is reclaimable on the first VAT Return after registration anyway. If poverty and the necessity to reclaim in view of the sums involved they might relent, but, on the other hand, they might not.
I do hope I have helped you with your question. You seem very aware of the VAT situations you might meet.
Customer: replied 2 years ago.

Keith, on the whole that was excellent, thank you. I have one question to ask about the 2nd paragraph - you said "any prior registration input tax on expenses disbursed is reclaimable on the first VAT Return after registration anyway" - is it not the case that VAT for any services you have received must be claimed within 6 months of receipt? If so, does that mean that if we don't register for, say, 8 months, then we will lose the input VAT paid for any services we have already received?

Expert:  bigduckontax replied 2 years ago.

Yes, you are correct in general terms input tax should be reclaimed within six months, tongue in cheek, a rule more adhered to in the breach than in the observance. There is an exception, see below. So, get registered as soon as possible.

Here is the advice in HMRC's VAT Input Tax Tool Kit. You will see that the limit for purchased good extends for a longer period:

'A business may generally reclaim VAT incurred on goods it has purchased no more than four years before the date of registration. The goods must, however, be for its taxable business purposes and remain on hand at the date of registration. A business may also generally reclaim VAT incurred on services it has purchased for its taxable business purposes during the six months before VAT registration. VAT cannot be claimed on goods and services purchased before registration which relate to exempt supplies or non-business activities.'

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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3396
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support; I do hope your ventures go well.

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