The best time to register for VAT
LH writes: I recently set up as a tailor but have not yet registered for Vat. What is the optimum time to do this? I have incurred some large set-up costs and it would be good to recover the Vat on these. Can I register now and recover the VAT?
The effective date of registration (EDR), for compulsory or voluntary registration, is the date from which VAT must be accounted for on taxable income (output tax), writes Jon Sutcliffe, partner at Kingston Smith LLP. Registration for VAT is compulsory if your turnover exceeded £73,000 in the preceding 365 days or if the threshold will be exceeded in the next 30 days alone. Provided that you expect to make taxable supplies, you may register voluntarily at any time.
VAT incurred on costs (input tax) up to six months before the EDR can be recovered on the first VAT return provided the services have been, or are being, used in the course of business activity. For the goods you have purchased you can go back four years provided the goods have not been “consumed”. For this purpose, goods will include materials you have in stock and also any capital purchases you have made, such as a shop fit-out, sewing machine or computer.
It is normally possible to obtain a backdated EDR to recover input tax from the period before registration. This is at HMRC’s discretion but it will often agree to backdate it to, for example, the day that trade began. You need to factor in to your decision that all sales from that point will have to include VAT, which will need to be declared and paid over on your first VAT return. It is HMRC policy not to backdate more than four years.