It’s come to light that VAT hasn’t been reclaimed on a batch of invoices going back several years. Can you claim a reduction on your next VAT bill?
Right to claim VAT
The rules for reclaiming VAT paid on purchases of goods or services (input tax) are easily misunderstood. Strictly, input tax should be claimed for the VAT return period in which the “tax point” occurred. The tax point is usually either the time the goods or services were supplied to you or when you paid for them, whichever is earlier. Generally, input tax claimed at any other time is a correction so subject to the rules which apply.
In practice
There are often circumstances where a claim can’t be made in the proper VAT period. For example, if you haven’t received the necessary evidence, e.g. an invoice. Whatever the reason, a correction can be made by reclaiming the input tax in a later return or via a standalone claim.
Tip. If the amount you are claiming is significant, rather than wait until your next return to get your VAT back, make a standalone claim immediately.
Time limit
The time limit is probably the most misunderstood rule. You probably know that the time limit for reclaiming input tax is four years, but that’s not the whole story. The four years runs not from the tax point, e.g. the invoice date, but from the due date for the VAT return on which the claim ought to have been made.
Example. Acom Ltd prepares its VAT returns for the quarters ending 31 May, 31 August, 30 November and 28 February. It purchased a widget for which the invoice date (and tax point) was 10 March 2020. A bookkeeping error meant Acom hasn’t yet recovered the input tax. Assume it’s now late June 2024, Acom is still in time to reclaim the VAT; it has until 30 June 2024 to do so, i.e. four years from the due date for the VAT return due for the quarter ended 31 May 2020. It can include the claim on its return for the 31 May 2024 quarter as long as it’s submitted by 30 June, or separate notification to HMRC by the same date.
Tip. The period between tax point and claim can be even longer where the purchase was made before registration for claims.
Example. Bcom Ltd was registered for VAT on 1 April 2020. Its VAT quarters end on 30 June, 30 September and so on. In June 2024 Bcom’s new bookkeeper reviews its VAT records and finds that the company didn’t reclaim input tax on some purchases of stock and materials bought in July 2019. Bcom has until 31 July 2024 in which to reclaim the VAT - four years from the due date of the return period in which it could have first made a claim, that was its first VAT return for the period ended 30 June 2020, due by 31 July 2020.
Trap. Take extra care if your business is partially VAT exempt and you’re making a late claim for input tax for general expenses, e.g. overheads like telephone bills. The proportion of VAT you can reclaim is that applicable to the VAT period in which the purchase was made and not the one in which you make the claim.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.