Tag Archives: VAT-vans

VAT: Pre-registration activities

By   2 October 2024
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This article looks at the period of activity before a business VAT registers: How to deal with sales and what input tax may be recovered.

VAT Registration

The obligation to VAT register here and the pros and cons of voluntary registration here.

Sales

Between application and receiving a VAT number:

During the wait, a business cannot charge or show VAT on its invoices until it receives a VAT number. However, it will still be required to pay the VAT to HMRC for this period. Usually, a business will increase its prices to allow for this and tell its customers why. Once a VAT number is received, the business can then reissue the relevant invoices showing VAT.

Purchases

Purchases made before registration:

Only the legal entity which actually purchased the goods or services and has applied to VAT register is entitled to input tax recovery.

There are time limits for backdating claims for input tax incurred before registration. These are:

  • four years for goods on hand at the time of the Effective Date of Registration (EDR), or that were used to make other goods on hand at the EDR. This includes both stock for resale or fixed assets
  • six months for services

Input tax can only be reclaimed if the pre-registration expenditure related to the taxable supplies made, or to be made, by the newly VAT registered business (whether these supplies are subject to subsequent output tax or whether they were made pre-registration but would have been taxable if the business was VAT registered).

The only VAT return on which such input tax is recoverable is the first.

Tip

When a business applies for registration, there is an opportunity to backdate the EDR. The provision for taxpayers to negotiate an earlier date is contained in The VAT Act 1994, Schedule 1, 9. This option should be considered if there is additional VAT that would become recoverable. This will mean that the first return will be longer than the normal quarterly or monthly returns.

The limit for backdating EDR is four years.

Irrecoverable VAT

Input tax cannot be reclaimed on:

  • goods that have been completely consumed before registration, eg; fuel, electricity or gas
  • goods that have been sold before registration
  • goods or services which relate to exempt supplies made, or to be made, by the registered business (see below)
  • services which related to goods disposed of before registration

NB: Businesses are not required to reduce the VAT deducted in respect of pre-registration use of fixed assets. Eg; input tax incurred on a van purchased three years before registration and used before and after registration would be recoverable in full.

The “usual” rules for input tax also apply to pre-registration claims; that is, some VAT is never reclaimable, see here.

Specific circumstances

There are special rules for partially exempt businesses and for businesses that have non-business income and for the purchase of certain items (see below) covered by the Capital Goods Scheme (CGS).

Included in the CGS are:

  • taxable land, property purchases of £250,000 or over
  • refurbishment or civil engineering works costing £250,000 or over
  • computer hardware costing £50,000 or over (single items, not networks)
  • aircraft, ships, and other vessels costing £50,000 or more

NB: The partial exemption de minimis limit does not apply to input tax incurred pre-registration.

Pre-incorporation

A limited company cannot register for VAT until it is formally incorporated. Goods or services may have been supplied to the directors or employees setting up the company before then.

A company can claim input tax on those goods and services if the it relates directly to the taxable business to be carried on by it following incorporation and registration for VAT. The six-month (services) four-year (goods) limits also apply to pre-incorporation claims.

Documentation

Any claim must be supported by a valid VAT invoice for each item. If this documentation is not available, there is a possibility that HMRC will accept alternative evidence.

Legislation

The right to deduct input tax as above is covered by The VAT general Regulations 1995, reg 111.

VAT and BIK – Double cab pick-ups

By   15 February 2024
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VAT and BIK – Double cab pick-ups

The changes to benefit-in-kind tax purposes from 1 July 2024 means that double cab pick-up trucks will no longer be classified as vans but as cars. This brings them into line with the VAT treatment of these vehicles, so here we look at the VAT rules:

HMRC and the Society of Motor Manufacturers and Traders (SMMT) have agreed how the one tonne payload test will be applied in practice to double cab pick-ups.

Cars are treated quite differently for VAT purposes from commercial vehicles:

  • most ordinary business cars are subject to a block on input tax recovery which is a proxy for taxing the private use of the car
  • the private use of commercial vehicles is taxed either by means of an input tax apportionment or a periodic output charge on actual private use
  • a business that converts a commercial vehicle into a car becomes liable to an output tax charge on a “self-supply” of the vehicle to itself para 14 Notice 700/57.

SMMT members will take steps to make dealers aware of the ex-works payloads of their double cab models.

Vehicles are not treated as cars for VAT purposes if they have a payload of one tonne or more. Payload is the difference between a vehicle’s maximum gross weight and its kerbside weight. In practice the change mainly affects those vehicles generally described as double cab pick-ups.

Given the different treatment of cars and commercial vehicles it is important for manufacturers, distributors, dealers, and business customers to know the payload of any double cab vehicle which is bought.

It is especially important to be aware that by adding accessories to the ex-works model they may, by lowering the payload of the vehicle, convert it into a car. This would make the vehicle liable to the self-supply charge. Such conversions are most likely to occur with double cabs that have an ex-works payload of 1000 to 1050 kg.

Accessories fitted by dealers or customers

HMRC will, with one exception, ignore as de minimis the addition of accessories. The exception is the addition of a hard top consisting of metal, fibreglass or similar material, with or without windows. In practice this means that a manufacturer, dealer or customer can fit any accessory to the vehicle, other than a hard top, and still rely upon its payload as being the ex-works payload. HMRC will accord all hardtops a generic weight of 45kgs.

In order to provide simplicity and certainty, HMRC and the SMMT have agreed to simplify the treatment of these vehicles. Full details of the agreement can be found at para 23 Notice 700/57 – Administrative agreements entered into with trade bodies.

Please see the recent The Three Shires Trailers case on input tax recovery and the self-supply of cars/commercial vehicles.

UPDATE!

Double-cab pickups go back to being vans, not cars for BIK (only). A week after the new guidance that classified double-cab pickups as cars rather than vans, the HMG has now reversed this decision on 19 February 2024.