Accountants Debate: Can a New Business on FRS Reclaim Pre-Registration Expenses <£2k

[Louisa@AardvarkAccounting]

Do you guys really work in the same team/company, or is this comment just in jest?

I love the idea of all of us sitting around together posting on CUK as a team!

[Darren at Fox-Bartfield]

CUK

I love the idea of all of us sitting around together posting on CUK as a team!

Along the lines of a CUK collaborative team, preferably over a few beers of course!

[Michael at BI Accountancy]

Hi Michael

Can I ask why you have said this?

Was an educated guess!

We have this question asked frequently from our clients when it comes to there first VAT return on FreeAgent.

[MikhailCompo]

So this is the response when I have asked an accountant to look into my claim that the VAT return didn't deduct pre-registration expenses:

"Hi Mike,

Thank you for your reply - I'm one of the accountants here, I responded to your previous email.

Unfortunately, VAT on pre-registration is a bit of a grey area with HMRC which I'm sure you can appreciate by the number of different opinions from people on the link you have sent across.

As you have registered for the flat rate scheme, then VAT on expenses cannot be reclaimed (unless it's an asset costing in excessive of £2,000) and in relation to pre-registration expenses HMRC do state that the amount of VAT that can be recovered is the amount that would have been deductible had the business been registered at the time the tax was incurred. The VAT wouldn't have been deductible because the flat rate scheme is being used therefore we believe that the VAT cannot be claimed. This is also supported by the 1% discount offered by HMRC in the first year of registration as they are aware that businesses can often have more expenses in the first year of trading.

However, looking at your software I cannot see any transactions before your date of registration on 25th September 2016 which would be entitled to a VAT claim.

I hope this helps however please let me know if you have any further questions.

Kind regards,
[name redacted]

Accountant"

As for the comment " cannot see any transactions before your date of registration on 25th September 2016" i bought a printer for about £250 dated 29/08/16 showing on my account, he simply isn't looking very hard?

Other comments people? Have then made a mistake? If so, what do you do when your account refuses to accept a mistake?

[northernladuk]

Other comments people? Have then made a mistake? If so, what do you do when your account refuses to accept a mistake?

I'd ask how much would that mistake actually cost me firstly.

[MikhailCompo]

When date was your registration? Did you buy the printer wholly for the company or will you be using it personally as well. I wouldn't be overly concerned if it was the latter personally but I guess it's about the principle here?

Company formed in August, VAT and FRS reg date is 25/09/16. So the printer (used for work only of course ) was purchased pre-registration date.

The quibble is purely that the pre VAT-registration expenses are all under £2k, and whether they can be reclaimed.

If I have known about this, then I would have purchased all the assets I required prior to registering for the FRS (laptop, computer, monitor, printer, docking station, domain reg, company formation fee, etc.) and saved myself £100's.......

[TheCyclingProgrammer]

Chances are you probably made enough flat-rate surplus to cover the input VAT on your pre-registration expenses anyway, especially with the 1% discount, so I wouldn't worry about it too much.

[MikhailCompo]

I'd ask how much would that mistake actually cost me firstly.

This is purely confidence, i am very rarely in contact with an accountant, I always deal with an account manager who doesnt inspire me.

If they have made a mistake I want them to refund a months charges and own up to making a mistake and apologise, I think transparency is crucial in a relationship with an accountant, all of whose working goes on behind closed doors and without making me aware of any of these so called 'grey areas'. I would prefer to be made aware and involved with decision making. That might be wishful thinking from a noob......

[teapot418]

So this is the response when I have asked an accountant to look into my claim that the VAT return didn't deduct pre-registration expenses:




As for the comment " cannot see any transactions before your date of registration on 25th September 2016" i bought a printer for about £250 dated 29/08/16 showing on my account, he simply isn't looking very hard?

Other comments people? Have then made a mistake? If so, what do you do when your account refuses to accept a mistake?

I have seen other instances of the same interpretation as your accountant; i.e. "The VAT wouldn't have been deductible because the flat rate scheme is being used"

However, section 7.6 of VAT notice 733 (which relates specifically to the FRS) makes it clear that you can recover pre-registration expenses on goods and services - if it was only intended to apply to things you could have claimed if you were on the FRS, services would not have been included.

https://www.gov.uk/government/public...all-businesses

7.6 Can I recover VAT paid before registration on goods and services?

Yes. Record the claim for eligible VAT in your VAT account for your first VAT return.

For details of the rules for claims, see VAT Notice 700/1 Should I be registered for VAT?

If you do claim VAT on capital assets on hand at registration and dispose of them later, you must account for VAT at the standard rate of VAT under the normal VAT rules.

IANAA

[Michael at BI Accountancy]

Was just about to bring up the same notice as Teapot418!

The line about "The VAT wouldn't have been deductible because the flat rate scheme is being used therefore we believe that the VAT cannot be claimed" is incorrect.