EU Purchases Prior to VAT Registration

Jul. 27, 2017, 2:42pm

In this blog we consider a new café business buying kitchen equipment from Italy. 

The café business isn’t VAT registered and the kitchen equipment supplier says the café business will be charged Italian VAT.  Is this correct? If so, can the VAT be claimed back?

image of a cafe interiorThe supply of goods from one member state to another can only be zero-rated where the customer provides the supplier with their VAT registration number and the supplier holds the evidence of removal. As the café business is not VAT registered this will be a distance sale from Italy, meaning that unless the supplier is VAT registered in the UK it will have to charge Italian VAT.

Unfortunately, there is no provision for recovery of pre- registration input tax incurred in other member states.  The café business could VAT register prior to making the purchase so that they would account for acquisition tax which would contra itself out. However, they should weigh up the immediate benefit of not suffering VAT on the purchase with the long-term effect of then having to account for output tax on the café sales which otherwise could be VAT free until the business turnover exceeds the threshold (currently £85000 pa).

If the café business were to buy equipment from a supplier in the UK then they would be able to take advantage of the usual time limits for recovery of pre-registration input tax.  This would allow recovery of VAT incurred in the four years prior to the effective date of registration (EDR) on stock and assets still on hand at the EDR, and six months prior to EDR in the case of VAT incurred on services.

If you have a VAT query why not contact us to discuss the implications. Our team have a wealth of experience and would love to hear from you.

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