How far back you can claim VAT on expenses depends on the circumstances which mean you need to backdate a VAT claim. In this guide, I share how you can claim backdated VAT on expenses depending on whether you are newly VAT registered, have missed VAT on expenses or made an error on a previous VAT return (because the rules are different in each scenario).
How Far Back Can Your Claim VAT on Invoices When You First Register?
When you first register for VAT, HMRC lets you go back and claim certain VAT on expenses you paid for before registering as follows:
- 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 expenses when you complete your first VAT Return by adding them to your box 4 figure, as well as keeping keep full tax records of the VAT you are claiming on expenses including:
- invoices and VAT receipts
- a description and purchase dates
- information about how they relate to your business now
An Example of the VAT Reclaim 4 Year Rule
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 online from 1 June 2020. To help him stick with his VAT return dates and deadlines, he hired a bookkeeper to help him for £500 plus VAT from 1 September 2020. When completing his first return, he can claim pre registration VAT back as follows:
- 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.
Claiming Back Missed VAT on Invoices
Missing out on claiming back VAT on invoices means you have been paying too much VAT. HMRC lets you go back 4 years to reclaim any VAT that was missed in previous VAT returns provided the total is less than £10,000*** or 1% of your box 6 figure (up to a maximum of £50,000)and claim this on your next VAT return.
If you are using a bookkeeping software like Xero, then you’ll most likely need to make an adjustment to reclaim missed VAT in both box 4 (input VAT) and box 7 (total value of purchases).
Even though there is no need to tell HMRC, you should keep detailed workings to present to HMRC in the event they carry out a VAT inspection.
*** the £10,000 limit is defined by HMRC as a net value of £10,000 (ie: the difference between what you owe HMRC and they owe you in respect of the error).
Reclaiming VAT on Errors
Similar to claiming missed VAT, VAT on errors of up to £10,000*** don’t need to be reported to HMRC and an adjustment can be made to reclaim missed VAT on a future VAT return.
Where errors or missed VAT exceed £10,000 a special disclosure needs to be made to HMRC in order to claim back the VAT using the form VAT 652. This form contains details about your business along with information of what the corrected amount should be, box by box.
Find out how to reclaim VAT on Errors exceeding £10,000 in this guide to Correcting VAT Errors.