Andrew Needham looks at when input tax should be claimed, and how to make late claims.
Businesses that incur input tax are entitled to reclaim it from HMRC. However, sometimes through an oversight it isn’t claimed on time, so what are the rules for claiming it back?
Normally the input tax on a purchase should be claimed in the VAT period in which it is incurred. So if your VAT return period ends in March and you receive an invoice dated 15 February it should be claimed in the period ending 31 March. If you are on cash accounting and you pay the invoice on 20 April you can claim the VAT back on the return for the period ending 30 June.
Late claims for input tax
If you don’t claim back the VAT on a purchase invoice in the correct period, HMRC say that you need to treat it as an ‘error correction’.
If the total of all ‘errors’ results in a net adjustment to the VAT return of less than £10,000 then it can be adjusted on the VAT return, but it will need to be recorded separately in an ‘error correction account’ rather than in the normal purchases records.
If the net total of all errors in the period results in an adjustment of more than £10,000 it will be need to be notified to HMRC separately using a form VAT652 and a separate repayment will be made directly to you.
Time limits for making a claim
A business has four years to claim back any unclaimed input tax. However the four years runs from the due date of the return on which you should have claimed back the VAT, not from the date of the invoice. This gives a business some leeway.
Example: Claiming within the time limit
You received an invoice dated 15 April 2013 and failed to reclaim it on time in the period ending 31 May 2013. The due date for the return is 30 June 2013 so the claim can be made on a return or VAT652 up to 30 June 2017.
If the business was on cash accounting and the invoice was paid on 10 June 2013, it should have been claimed in the period ended 31 August 2013. The due date would be 30 September 2013 and so the claim could be made up until 30 September 2017.
Late invoices
If an invoice is received late because of a delay by the supplier or it gets lost in the post and it is received in a later VAT period it would not count as an error correction because you did not have the correct evidence to make the claim at the time. In these circumstances, the invoice can be claimed in the period that it is received in the normal way and no error correction is required.
Pre–registration input tax
If a business incurs input tax on goods that it still has on hand at the time of registration it can go back up to four years from the date of the invoice and for services a period of six months.
The claim should be made on the first VAT return, but if it is not then you can still claim it back up to four years after the due date for the first VAT return. This means that in exceptional circumstances a claim can be made for the VAT on goods purchased up to eight years previously.
Practical Tip :
If you have failed to claim back input tax on time you have up to four years to make the claim. If the total errors are more than £10,000 you will need to make a seperate error correction.
