Why Is Everything About VAT Just So Complicated?

We could blame Europe as most of our VAT rules are based on EU legislation written by the founder members of the EC. Or should we just blame ourselves for making things difficult?

VAT can be a very confusing! That's why we work with specialist VAT consultants!

Owing to the complexity of VAT, we at Essendon collaborate with specialist VAT consultants to ensure the right advice is given. One question that seems to be a hot topic at the moment surrounds potential VAT liabilities prior to becoming VAT registered.

Here is an example:

Joe, a local plumber, is looking to buy some new equipment costing £24,000 including VAT. Joe has worked out that if he was VAT registered he could claim £4,000 back from the Government.

Then his mate Dan mentions down the pub that he could also claim the VAT back on the van he purchased three years ago, again for £24,000. Surely Joe just can't claim back £8,000?

Well the answer is yes, but there are strings attached!

The first string is that Joe will need to add VAT to his invoices that he sends to all of his customers. This is OK if the customer is VAT registered themselves, but not if the customer is a member of the public.

As regards the van, Joe may claim the VAT back as VAT legislation permits the claim of VAT on goods bought by the business in the four years prior to the registration date, provided that the van is still used within the business, there is an original VAT invoice and the entity that purchased the van is the same entity that is now registering for VAT.

If Joe had purchased the van while being self-employed, but is now effectively trading through a limited company, he wouldn't be able to make the claim for VAT.

With a bit of good planning, Joe could have registered for VAT for a few days while being self-employed, made a VAT claim and then transferred his VAT registration to his new company under the 'VAT going concern' rules. A bit of forward thinking could have saved Joe £4,000.

If you'd like to find out more about VAT for your business, and what and when you can claim, do give me a call on 01908 774320 or click here to ping me an email and let's put you in touch with one of our trusted specialist VAT consultants.

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More about Roger Eddowes ...

Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.

Why Is Everything About VAT Just So Complicated?

Are we just making things difficult for ourselves?