Early registration of company for VAT reclaim purposes

[bradthiele]

Hello,

I intend to begin trading trading from a home based operation in the next 12-18 months. Between now and then I plan to perform extensive modifications on my home to create separate operations area from which I'll trade.

I was wondering if it is wise to form the Limited Company now and pay for the modifications through the company's directors loan account. By registering immediately for VAT, I would be able to reclaim the VAT on construction & architects fees.

Is this reasonable given that I won't have any turnover for some time? Am I missing something here?

Regards,

Brad

[3pic]

Your idea is sound, in principle. However, when registering for VAT, HMRC will want evidence of your intent to trade (ie, agreements with suppliers, potential clients, etc)- so may not authorise the registration without clear intent from yourself that you will be trading in the future.

They will certainly be interested when they receive the first VAT return with a high VAT recovery (due to constructions works) and no output tax and will likely incur a visit from them and they may block any input tax they believe is not for a genuine business purpose.

Depends upon your "extensive alterations". Such alterations would likely require planning consent and unlikely to get planning permission if you intend to turn a residence into a commercial property - so am guessing you intend to merely extend the house for office space. HMRC may not see this as valid if the property is your main residence and the works done not of a business purpose - so be careful, a new conservatory or bedroom extension is not going to be approved by HMRC and they may de-register you if they believe your intent was to avoid VAT on extending your house.

With carousel fraud still prevelant, HMRC have many new powers and tools and you need to be careful not to fall foul of any anti-avoidance legislation.