Newly VAT registered minibus and taxi hire business that has operated for a number of years before reaching the VAT threshold. A submission has been sent to HMRC in respect of the VAT on pre-registration goods going back four years and services going back 6 months that were still in use at the registration date.
A reply has been received indicating that after a change in interpretation going back to Spring 2014, the full amount is no longer recoverable and only the VAT on the market value or depreciated cost of the vehicles at the registration date is now able to be reclaimed. In addition, the client had also paid for a new engine for a vehicle, which was capitalised at the time as it extended the useful life of the asset. HMRC has again indicated that the VAT on this is not recoverable as the engine is treated as consumed prior to the date of registration.
Does anyone have experience on such matters, either the taxis themselves or the engine query because as mentioned above the original interpretation was that as long as the asset is still in use at the registration date then the VAT is recoverable, this now appears wrong