Q- My client is about to register for VAT and wants to use the flat rate scheme as she meets the conditions and it would be beneficial to her. However, her intention is to register for normal VAT initially, in order to recover pre-registration input tax, and then after the first return has been filed, switch to the flat rate scheme. Is this acceptable or will HMRC challenge it?
A- Input tax incurred after the effective date of registration is not recoverable, under flat rate rules, with the exception of capital items costing more than £2,000 including VAT.
However, there is no need to switch VAT accounting schemes to recover pre-registration input tax. HMRC Notice 733, confirms at para 7.6 that a trader using the flat rate scheme can recover input tax on goods and services prior to the effective date of registration (EDR) under the normal rules.
The normal rules for pre-registration input tax can be read in VAT Notice 700 (section 11) and in HMRC manuals VIT32000 – Read More