Backdated VAT Claims: What Are They & How Do They Work?

‍The short answer: 

Yes. HMRC guidelines state that you can reclaim VAT on goods up to four years after purchase, and on services up to six months after purchase. This is commonly referred to as a ‘backdated VAT claim’.

But like all things tax related there are certain conditions attached. Let’s go through these below.

The Basics: 

If you’ve recently registered for VAT, or are thinking about voluntarily registering for VAT, it’s important to consider if you’ve incurred any expenses that you can reclaim VAT on as this could lead to a big VAT refund for you! 

HMRC allows newly VAT-registered businesses to reclaim the VAT they’ve paid on purchases before they were registered. This includes VAT paid on goods purchased within the last four years, and services purchased within the last six months

Examples of goods include: Laptops, equipment, office furniture and general physical items that you’ve bought for business purposes. If you buy and sell items, the stock you hold counts as goods too.  

Examples of services include: Software, professional services, web hosting, domain names, marketing expenses - and generally anything that you cannot physically touch.

‍The Rules: 

To claim back VAT pre-registration, certain rules apply. 

‍You must have a VAT invoice or receipt

The first key rule is that you must have a valid VAT invoice or receipt for each item in order to process a backdated VAT claim. In addition: 

You can reclaim VAT on pre-registration expenses if: 

1. The expenses were bought by you or the entity that is now registered for VAT
2. Any expenses were incurred for your business purposes
3. Any goods/services bought are still held by you (and not sold or disposed of)

You cannot reclaim VAT on pre-registration expenses if: 

4. You were already a taxable entity e.g. a sole trader, when you made the purchase
5. You have already sold (or do not still hold) the goods purchased from being VAT registered
6. You’ve entirely consumed the goods before your VAT registration data (e.g. petrol, electricity or gas)

Moving from sole trader to limited company

One common question is whether you can recover VAT on expenses you incurred when you were a sole trader, assuming that you are now operating as a VAT registered Limited company. 

Unfortunately the answer to this is no. This is because a sole trader is considered a different taxable entity to a limited company and therefore violates rule ‘1’ listed above. This is explicitly covered under 11.4 (‘Rules for reclaiming VAT on supplies before incorporation’) in HMRC's VAT manual (linked here)

Examples to illustrate:

Example 1: Backdating a VAT claim in the same business name

• 3 years ago, your business purchased a video camera for £1,000 plus VAT, amounting to a total of £1,200, to support your business operations. 
• At that time, your business was not registered for VAT, but now your business is VAT registered and continues to use the camera for business purposes.
• You can claim back the £200 of VAT paid. 

Example 2: Backdating a VAT claim from before you registered your limited company

• 2 years ago, before you incorporated a limited company you bought a laptop computer for £2,400 paying for it with personal funds. 
• You never used the laptop as a sole trader, and only used it for business purposes. 
• You have since incorporated your limited company and are now VAT registered.
• HMRC allows you to claim corporation tax relief and reclaim VAT on expenses incurred before you even registered your limited company. 
• This means you can claim the full cost of the laptop through the business and reclaim back £400 of VAT, provided you have the original receipt.

For information on how to claim pre-incorporation expenses please see the guide here. 

Example 3: Moving from sole trader to limited company

• 4 years ago when operating a sole trader you bought a video camera for £1000 plus VAT, amounting to a total of £1,200. 
• You’ve since incorporated as a limited company and become VAT registered. 
• In this instance, you cannot reclaim VAT as the video camera was bought by a different entity (when you were sole trader).

How to claim back VAT:

Mighty makes it easy to reclaim any pre-registration VAT expenses. Watch the video below to understand more, or read the steps below.
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Step 1: Ensure your VAT details are added into Mighty.

You can add these within your company settings under the HMRC & Taxes header. Within here, you'll be able to add your VAT registration number, the scheme you're on and your registration date:
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​Step 2: Update the VAT details on any expenses already within Mighty.

For expenses you paid via your business bank account, you can go into the bookkeeping tab, click into any expenses which you need to reclaim the VAT on and then update the VAT Type dropdown.

Step 3: For expenses you've paid for personally, you can update the VAT by clicking into the expenses within the 'personal expenses' tab and updating the VAT dropdown. It's important to make sure the total amount is still correct:
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​That's all there is to it, the VAT on these expenses will then be pulled into your first VAT return.

Any questions?

If you use Mighty and have any questions around the filing process, please contact support and we’ll be delighted to help.

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