The importance of choosing the correct date of registration

The client

We worked with a client who had refurbished a property to be let as a holiday home, and had plans to make VAT-able supplies of the property. The client had already incurred VAT on invoices from contractors including plumbers and builders during the two-year refurbishment.

We were contacted by the client’s accountant for advice on how to go about the application, and whether the VAT on costs incurred to date could be recovered as pre-registration input VAT under the 4-year rule.

Our advice

We found that the client’s accountant had not taken into account that the costs incurred from the contractors were services, meaning that the six month pre-registration rule would apply. The impact of this would be that if the current date was chosen as the date of registration, a significant amount of VAT would be lost.

We advised the accountant to backdate the VAT registration and by doing so secured VAT recovery. If the accountant had continued down the path that he was intending it would have been extremely difficult (and potentially impossible) to rectify the issue.

This case is not in isolation and we regularly receive similar queries. If you are an accountant in a similar position, we recommend that if your client is incurring VATable costs and is considering VAT registration at some point in the future that you carefully consider the date you are advising them to be registered with effect from.