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Have you reclaimed VAT on old unpaid supplier invoices?

Debt Envelope Scattered Stack

Unless you have opted for Flat Rate or Cash Accounting, VAT is normally reclaimed when you get an invoice from your supplier.

However, some invoices will be disputed and the disputes can drag on for months. Its easy to spot old supplier invoices by looking at your Aged Creditors Report.

But having reclaimed the VAT you might not realise that after 6 months the VAT will need to reversed on your next VAT return. The rules are in VAT Notice 700…..

VAT Notice 700: the VAT Guide

10.6A Repayment of input tax if you do not pay your supplier

For supplies received on or after 1 January 2003 you are required to repay any input tax you have reclaimed if you have not paid your supplier within 6 months of:

(a) the date of supply (usually taken as the invoice date), or if later (b) the due date for payment

Take a look at your Aged Creditors now and if you discover supplier debts older than 6 months provided the net value of errors is less than £10,000 you can simply correct it on your next return, if the error is more than £10,000 you will need to use Form VAT 652

There is a possible alternative, normally the 6 months is counted from the due date not the invoice date, so you could agree new terms on the disputed invoice and extend the due date.

VAT for sole trader start-ups

How to maximise your VAT reclaim

As any new business knows, you can incur significant costs at the outset before you get any income.  Most of these start-up costs will have VAT included and if you plan properly you should be able to recover this VAT as long as you are planning to make taxable supplies.

Save pounds on VAT

Plan ahead and reclaim everything

If you are setting up a business and can ahead, you can register for VAT from the date your business will start.  For most traders there is not any restriction on the date the business can start, but for some professional services eg barristers and advocates, no trade exists until they qualify.  To maximise the VAT to be reclaimed, the sole trader can register for VAT in advance of date of commencement, effective the date they are due to qualify.  This means that the VAT registration will be in place from the 1st day of trading and all sales invoices can be issued as VAT invoices.

Pre-registration VAT

There are specific rules allowing pre-registration VAT to be reclaimed, but any claims to recover pre-registration VAT must relate to the same trade and made by the same person.  A sole trader who incorporates the business is not the same legal person as the new company.  Any VAT suffered by the (unregistered) sole trader can’t be claimed as pre-registration VAT by the new company.

Get help with registering

Your accountant will be able to register you for VAT and recommend the best scheme for you.  It can take a few weeks for HMRC to process applications, but accountants who are registered as agents with HMRC are likely to have a quicker turnaround time.  For advice on registering for VAT and setting up your invoices, please visit the Alterledger website.

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