When are late VAT claims allowed?

Your bookkeeper has picked up on several purchases for which VAT hasn’t been reclaimed. Some transactions are several years old and reclaiming the VAT might involve more than you think. What’s required?

Time limit

Unless you use the cash accounting scheme, you should claim the VAT paid on purchases (input tax) on the return for the quarter in which you received the goods or services or, if later, when the VAT invoice was received. However, there’s an overriding time limit, but this is often misunderstood. The time limit is four years from the return period in which you received evidence that you paid VAT, not four years from when the transaction took place.

Tip: If you receive a corrected invoice from a supplier because they used the wrong VAT rate, or they’ve been forced by HMRC to register for VAT retrospectively, you can, by concession, reclaim the input tax within three years of receiving the invoice.

Late claims

Where you claim input tax later than the VAT period you could have but within the four-year limit, the amount must be worked out according to the circumstances which applied when you were first entitled to make a claim. For example, if you’ve discovered input tax previously overlooked for a purchase made when you weren’t registered and not entitled to reclaim under the pre-registration rules, you can’t reclaim it now.

Late claims and partial exemption

Late claims are especially tricky if your business is partially exempt because it can retrospectively affect the annual adjustment and the impact of the VAT de minimis limits.

Partial exemption cut-off

There’s potentially a further complication for late claims if your business is partially exempt. If the quarterly VAT period when the input tax was incurred is more than four years ago, no correction can be made, but you must still review and correct the annual adjustment if that’s within the four-year time limit. This can increase or decrease the input tax reclaimable for the earlier period and you’ll have to account for this by adjusting the return for the current period.

Making an adjustment

VAT corrections for earlier periods can be made either by adjusting your VAT return for the current period or by sending a separate notification to HMRC.

Contrary to popular belief, the four-year time limit doesn’t begin from the date of the transaction, but from the end of the VAT quarter in which you were first entitled to reclaim the VAT. If your business is partially exempt, a late claim might also retrospectively increase or reduce the annual adjustment.

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