Pre-registration - VAT
Q: My client recently incorporated and immediately registered for VAT. Before incorporation he purchased a van which he used in the sole trader business before incorporating. I have read the rules in para 11.4 of Notice 700 and believe he can recover the VAT on the van on his first VAT return as pre-registration VAT. Am I correct?
A: The rules in para 11.4 of Notice 700 are misleading and would suggest this VAT claim was possible however the law in Regulation 111 of SI1995/2518, and the guidance in VIT32000, are clearer as to the actual meaning of the pre-incorporation VAT claim rules. The purchases must be for the benefit/purpose of the company. In this scenario the van was purchased for the benefit of the sole proprietor business and was used by the sole trader business to make supplies prior to incorporating. The VAT incurred by the sole trader cannot therefore be recovered as pre-registration VAT by the company; if the sole trader had VAT registered prior to incorporating, it could have recovered the VAT on the van itself under the pre-registration rules.