Back dating vat

07-Oct-2020 01:51

Joe Bloggs, who is not registered for VAT as his turnover is just below the VAT threshold.

In the last five years, he has incurred significant setup costs.

Can he backdate a voluntary VAT registration and recover these?

Businesses only have limited rights to recover input tax retrospectively, so consideration should be given to the date of registration as you can normally only go back four years for recovering the VAT on goods still on hand at the date of registration and six months for services.

In this example, if the Corporation Tax rate is 20%, the Corporation Tax on the FRS gain (only) is £240.

Therefore the overall annual gain of using the Flat Rate Scheme, after tax, is £960.

This FRS gain would be added to the Net Profit and therefore would be subject to Corporation Tax.

In the above Standard VAT Accounting Scheme example, the turnover is below the VAT Registration Threshold, but the business could still register voluntarily.

The company would pass on to HMRC, the £10,000 VAT charged to customers, and would also be able to reclaim the £400 VAT incurred on Expenses. If the same business instead elected for the Flat Rate Scheme, it would not be able to reclaim the £400 incurred on Expenses.

The VAT Flat Rate Scheme is simple to run and can be financially advantageous.

Most VAT Registered "Small Businesses" can choose to be in the VAT Flat Rate Scheme.

Please ensure that you understand the FRS and your eligibility by referring to the HMRC Flat Rate Scheme Guide and HMRC Notice 733. You can apply to use the FRS if you estimate that your taxable turnover (excluding VAT) in the next year will be £150,000 or less.