I started a new business eight months ago but was not VAT-registered. Now I want to sell machinery and close the business. Can I claim VAT back and do I need first to register then sell the business?
The good news is that yes, you can claim for VAT incurred on purchases of goods up to four years, before registration, and services for the six months preceding registration.
The less good news is that you will need a lot of very good records to support your claims – and in the case of services, you can only go back six months, so will by now have missed the deadline to reclaim on things like company setup fees or any initial set up costs for the machinery.
You will need to register far VAT in the normal way before you can make any reclaim – it can all be done online now via http://www.hmrc.gov.uk/vat/start/register/how-to-register.htm. It is worth remembering that HMRC cannot refuse to register you for VAT if you are making/intend to make taxable supplies in the course of your business, unless they have good grounds to suspect you of a VAT fraud.
You must still have the business though; if you shut it down, you won’t be able to register. Retrospective reclaims are subject to all the usual conditions about relating to taxable, rather than exempt supplies, and being in respect of assets/services used in the business.
You will need to still have the assets at date of registration though to make a claim on them, so don’t sell any until you’re registered. You’ll also have to disallow the appropriate proportion if say 30 per cent of the calls made on a mobile phone have been for personal use, or if some or all of your supplies relate to exempt activities such as healthcare or education.
Don’t forget that exempt is different to zero rated (e.g. farming) – talk to an accountant if you need help. Don’t forget you’ll need to account for VAT in the appropriate manner after registration. The fact that you’re making claims for preregistration VAT doesn’t stop you registering for a flat rate scheme (if there is one for your business), although if you’re winding the business down that may not be a worthwhile saving in effort anyway.
There’s more detail on the claims process at http://www.hmrc.gov.uk/vat/start/register/purchases-before.htm.
See also: Claim Back Mis-Sold Loan Protection