In a surprise announcement, HMRC is inviting claims from businesses which have registered for VAT and which have suffered a restriction in the VAT that they are entitled to claim for assets on hand at the time of registration.
The announcement seeks to 'clarify' the rules which they say have always permitted full recovery of the VAT on the asset even if it was previously used in the business for a period prior to registration.
There is an acknowledgement that there has been inconsistent treatment so to rectify the position HMRC are inviting claims from any business which has suffered in the way, whether by voluntarily reducing the claim originally made or whether HMRC has specifically reduced a claim via the issuing of an assessment to recover over claimed VAT.
The background to a sudden announcement 'reconfirming' HMRC policy lies in what HMRC tell their own officers to do in their 'Internal Manuals'. These are now published online and one of them with the catchy reference VIT32000 clearly states that any claim for assets on hand must reflect depreciated use to take account of the fact that an asset had been used previously for the purposes of a trade which was not registered for VAT.
The example quoted in the Manual is a van purchased and used ion a business which was not registered and subsequently becomes registered and the instruction to officers is 'The amount of VAT that can be recovered …should reflect the use of the van for making supplies before registration'. It seems hardly surprising that there has been 'inconsistent treatment' given that officers were given this incorrect instruction!