There are special rules that determine the recoverability of pre-trading VAT costs. Pre-trading VAT costs describe VAT that was incurred before a business registered for VAT and is known as pre-registration input VAT.
There are different rules for the supply of goods and services, but VAT can only be reclaimed if the pre-registration expenses relate to the supply of taxable goods or services by the newly VAT registered business.
The time limit is backdated from the date of registration and is:
- 4 years for goods you still have or goods that were used to make other goods you still have; and
- 6 months for services.
The VAT should be reclaimed on the business’s first VAT return. When a new VAT registration is applied for it may be possible to backdate the registration (known as the effective date of registration). This should be considered if there is additional input tax that will be made recoverable.
There are special rules for partially exempt businesses and for businesses that have non-business income and for the purchase of capital items within the Capital Goods Scheme (CGS).