I’ve updated this post on 29 October 2020 for changes in the latest legislation
If you are wondering how far back you can claim VAT on expenses, then you are probably falling into one of two scenarios:
- You’re newly VAT registered, completing your first VAT return and want to reclaim VAT on expenses you paid for before you registered;
- You’ve made an error and missed out on claiming VAT on expenses in previous VAT quarters so want to know you’re options for backdating a claim.
The rules are actually different for each scenario are different so in this guide I look at each one separately.
How Far Back Can Your Claim VAT on Expenses When You First Register?
When you first register for VAT, HMRC lets you go back and claim certain VAT on expenses you incurred before registering. The HMRC rules are that you can reclaim VAT:
- 4 years for goods you still have, or that were used to make other goods you still have;
- 6 months for services.
You’ll need to claim back any VAT on your first VAT Return by adding them to your Box 4 figure as well as keeping keep full tax records including:
- invoices and receipts
- a description and purchase dates
- information about how they relate to your business now
Graeme started a consultancy business on 1 May 2019 and he bought a laptop for £1,000+VAT. His business grew and he registered for VAT from 1 June 2020. To help with completing his VAT return, he hired a bookkeeper to help him for £500 plus VAT from 1 September 2020.
When completing his first return, he can claim VAT back:
- On the laptop purchased on 1 May 2019, since he was still using it and it’s within the
- On bookkeeping fees for 6 months prior to his VAT registration date from 1 June 2020.
Correcting VAT Errors and Reclaiming Missed VAT
Errors can happen and invoices can get missed. But missing out on claiming back VAT on expenses means you have been paying too much VAT. HMRC lets you go back 4 years to reclaim any VAT that was missed previous VAT returns provided the error is less than £10,000.
These types of errors can simply be included in your next VAT return. There is no need to tell HMRC but you should keep detailed workings, just in case you are inspected.
Handling VAT Errors of More Than £10,000 (VAT Form 652)
Where the VAT on expenses that were missed on previous returns adds up to more than £10,000, then a special disclosure needs to be made to HMRC in order to claim back the VAT using the form VAT 652.
You’ll need to include details about your business on the form along with details of what the corrected amount should be, box by box. If the mistake spans more than one quarter, multiple sections will need to be filled in.
Always keep full records of your backdated VAT claim including copies of invoices and details how you made your claim.
Once completed, you’ll need to print and post the form to HMRC VAT Correction Team at:
HM Revenue and Customs
VAT Error Correction Team – SO864
If you are unsure on how far back you can claim VAT or have any questions, call HMRC VAT helpline on 0300 200 3700.
New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:
- Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
- Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
- Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
- VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
- Invoice Template – Free template and step-by-step guide so you can get paid by your clients.