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Incorrect VAT expenses
My VAT registration date is 01/06/07 - but when the first VAT return after this is calculated (for the period 01 Jun 07 - 30 Nov 07), it includes all the expenses from my company start date (March 07) to Nov 07 - so the VAT calculation is completely wrong!
I’m frustrated
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Inappropriate?Turns out you can reclaim VAT on expenses incurred prior to registration - up to 3 years prior for goods (which FreeAgent assumes) and 6 months for services.
Check out the HRMC VAT Notice 700 Section 11 for details. Riveting reading as always!
I’m hoping we are indeed doing this right, in which case we may have saved you some money!
1 person says
this solves the problem
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Inappropriate?Hi -
I've spoken to my accountant about this and he advises this isn't quite right - apparently because I was established as a ltd. company and billing people prior to registering for VAT, I can't backdate the VAT. As he says, if I did that, the VAT people would expect to have their cut of the money I made during that period - which does kind of make sense.
Or is this just a matter of interpretation - and my accountant has just cost me quite a bit of money? If it is, is there any way to set the VAT start date as the point to include expenses from - at the moment I just want to get my freeagent central account to tie in with my accountant's figures.
Thanks for your help,
Ben -
Inappropriate?We're not accountants here at FreeAgent Central.
But it seems that the rules are very clear, and interpretation is not required:
Paragraphs 11.2-11.3 from the reference above state that you can treat VAT paid on goods and services as if it were input tax (with varying timescales and excluding goods consumed before registration like petrol).
Paragraph 11.4, to which your accountant may be referring, does not state that since you are incorporated you can't do this. It states that you can even claim from before the incorporation date in certain circumstances (effectively if, like most freelancers, you yourself purchased the goods or services for the business and you became one of the company directors and 'reimbursed yourself').
I'll admit that, on cursory reading, the first sentance of para 11.4 seems to indicate that there is some exclusion for companies. But that's not actually what it says.
And as for giving the VAT people a 'cut of the money that you made pre-registration'! You weren't charging VAT so why should they have anything?
Can I suggest you go back to your accountant and ask him to point to the rules he's using to inform his 'interpretation'?
I’m prepared to be proved wrong, but I don't belive I am. But then, who does?
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Inappropriate?Thanks for the reply - taken your advice and emailed my accountant again. And I've also made an appointment to see another one about this to make sure / change accountant - I'll post here when I find out. Thanks again, Ben
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Inappropriate?I have an A4 sheet which explains this in detail but in plain English. E-mail me Stuart@3ca.co.uk and I'll send you a copy.
I’m confident
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Inappropriate?Many thanks to both of you - you're definitely right: you can charge VAT pre registration, and my accountant was mistaken. Sorry for wasting your time - and thanks thanks your help and your great app - very pleased I signed up for it - it's already paid for itself.
I’m thankful
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