Invoices Pre Registration of VAT

[AndyBrown]

My company is below the VAT threshold. In the next few months, we are expecting a largish project that will take it over the VAT threshold and we will register for VAT. I have considered invoicing the client early for part costs at least a month, probably two, before the requirement for VAT registration (still below the legal VAT registration limit). The invoice will be without VAT. However, we will register for VAT voluntarily before we order materials for the project, allowing us to claim the VAT back. Is this tax avoidance or a legitimate business activity. We would normally demand an upfront payment anyway, but this would be higher than our normal amount.
Andy

[Trevor S]

To clarify, are you only planning to invoice the client in advance of registration and service provision, or are you also expecting them to pay that invoice in advance?

Unless the earlier of:

• the provision of your services and

• payment by your customer

also takes place prior to the effective date of registration, I think that your supply is likely to be subject to VAT.

VAT registered organisations can bring the time of supply forward through the early issue of a VAT invoice, but the invoice you appear to be planning to send wouldn't be a VAT invoice.

[robbob]

However, we will register for VAT voluntarily before we order materials for the project, allowing us to claim the VAT back.

I am presuming your customer for large job is not vat registered

I could be wrong here but you should not be able to claim any advantage by doing an early registration as you cannot claim materials relating to pre-registration sales (unless there is a sneaky get out i am unaware of) - note though the flip side always applies too that there is no need to bring forward vat registration to claim back materials - as long as the materials relate to the supply with vat on you can always claim the vat back irrespective of timing of those supplier invoices. So i would say trying to delay vat registration is the normally the best option - in some respects having your cake and eating it would be delaying vat registration as long as possible then taking as much in upfront payments as you can in the mandatory waiting month between exceeding threshold and compulsary registration - thereby delaying your vat registration date as long as possible. Could you take it to the ultimate and take a labour only invoice payment upfront in that waiting month and then do a materials only invoice immediately after registration (and claim vat on materials) - i am presuming thats probably streching things too far if there is only one all in quote for the job?

[AndyBrown]

Thank you for your replies.

My customer is not VAT registered and is happy to pay upfront for part of the project and can do so before registration.

What I am planning to send would not be a VAT invoice. I have read that as it is before the pre-registration date, we cannot charge VAT.

I have read a lot of information about claiming Input Vat back on pre-registration supplies and also about post registration procedures. I cannot find any guidance about not claiming input tax on materials whilst VAT registered that relate to pre-registration sales, as Robbob suggests. Any information about this would be greatly appreciated. My understanding is that when a business is VAT registered it can claim input Vat from all purchases, if supplied with a VAT receipt, even for zero rated supplies.

It is a building project and the total amount cannot be quantified until a later stage. Subsequent invoices would be subject to VAT.

Thanks in anticipation

[Trevor S]

I cannot find any guidance about not claiming input tax on materials whilst VAT registered that relate to pre-registration sales

Notice 700, section 10.2 effectively states that you can only reclaim input tax that relates to supplies you make which are liable to VAT. The wording of s26(2) of the VAT Act 1994 is very similar.

If your supply to your customer is made pre-registration, then you haven't made a taxable supply and you can't reclaim input tax on related purchases.

My previous post about tax points/time of supply was because raising the invoice pre-registration isn't enough to stop the supply being taxable. It would also have to be paid by the customer pre-registration, as it is receipt of this payment that would set the tax point, due to your invoice not being a tax invoice.