You’ve just registered for VAT and your first return is looming. The rules on reclaiming VAT on purchases made before registration sound simple — goods on hand at registration, services in the previous six months — but the detail is where the traps sit. Four myths account for most of the errors we see on first returns.
The starting point
Regulation 111 of the VAT Regulations 1995 (SI 1995/2518) sets the rules: VAT is reclaimable on goods bought in the four years before registration (if still on hand at registration) and on services received in the six months before registration. Both are subject to the underlying test that the purchases are used to make taxable supplies after registration — and that test is what drives the myths.
Myth 1: the new entity can reclaim the old entity’s VAT
When you transfer a sole trader business into a company — or between any two different legal entities — the new entity cannot reclaim VAT the predecessor paid. If both sides are VAT-registered, the transfer is usually a transfer of a going concern and falls outside the scope of VAT (VATA 1994 s.49 and the VAT (Special Provisions) Order 1995, SI 1995/1268, Art. 5). So the old entity shouldn’t charge VAT on the transferred assets, and the new entity has nothing to reclaim anyway. Incorporation is one of the easiest places to assume continuity where the law sees a clean break.
Myth 2: pre-incorporation VAT is lost forever
The counter-myth. Many owner-managers assume VAT on purchases they made personally before the company existed can never be recovered. Not true. Regulation 111 allows a newly incorporated company to reclaim VAT on goods and services bought by a director or shareholder before the company was formed, provided the costs were incurred in preparing for the taxable business, the individual is reimbursed by the company, and the standard 4-year / 6-month time limits are met (running back from the registration date).
So the laptop you bought on your personal card eight months before setting up the company is recoverable — if the company reimburses you and it’s being used in the business.
Myth 3: all VAT on pre-registration services is recoverable
The most common myth and the most expensive to get wrong. The six-month services rule is not a blanket recovery right. Regulation 111 restricts recovery in several ways — the best-known is services relating to non-business or exempt supplies; the one that catches people out is services used up before registration. An example:
Zebra Ltd registered for VAT on 1 March 2026. Its business is buying, refurbishing and selling second-hand machinery. In December 2025 it bought 20 similar items and paid an engineering firm £300 + £60 VAT per item to recondition them (£6,000 + £1,200 in total). Of the 20, it sold 14 before 1 March 2026. Zebra can only reclaim the VAT on the refurbishment of the six items still on hand at registration: £60 × 6 = £360. The other £840 of VAT is lost, because the service was fully used in making pre-registration sales.
This is particularly painful because the goods themselves are often still recoverable — it’s the service element that falls away when the underlying items are sold pre-registration. In a services-heavy business, the numbers stack up fast.
Myth 4: you can’t reclaim without a VAT invoice
In most cases, yes — a valid VAT invoice is required (VATA 1994 s.24 and reg 29 of the VAT Regulations 1995). But where an invoice is lost or genuinely cannot be obtained, HMRC has discretion under reg 29(2) to accept alternative evidence: supplier statements of account, delivery notes or completion certificates, bank or card records showing payment to a known VAT-registered supplier, and contemporaneous correspondence referring to the supply.
The threshold is one of reasonable satisfaction — HMRC wants to see that the purchase happened, from a known VAT-registered supplier, and that VAT was paid. A shoebox of receipts won’t clear the bar; a bank statement plus matching emails usually will. Guidance sits in VAT Notice 700 and the Input Tax Manual (VIT31200).
The takeaway
First VAT returns are the easiest place to leave money on the table — the pre-registration position is a one-off calculation and accounting software rarely prompts for it. List goods on hand at registration, work back six months for services, separately capture pre-incorporation purchases on personal cards, and gather alternative evidence early where invoices are missing.
How we can help
We handle first VAT returns for owner-managed clients regularly — pulling the pre-registration claim together alongside the ongoing returns, and escalating alternative-evidence cases with HMRC where needed. If you’ve just registered, or are about to, get in touch before the first return goes in. We’ll answer the phone.
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