In Aspire in the Community Services Limited v HMRC [2026] TC09789, the First Tier Tribunal (FTT) allowed recovery of input VAT on purchases made before the Effective Date of Registration (EDR). Under the pre-registration input VAT reclaim rules, there was no basis for taking into account pre-registration use.
Aspire in the Community Services Limited (ACSL) appealed against a decision made by HMRC in which they refused to issue a repayment of part of the input VAT claimed by ACSL.
The outcome of this appeal has a significant impact on the care home sector, with at least seven other care home businesses appealing similar issues relating to pre-registration VAT.
- Apsire in the Community Limited (ACL) provided welfare services to clients, including to both local authorities and clinical commissioning groups.
- ACL was registered with the Care Quality Commission (CQC) and consequently supplied exempt Welfare services under Item 9, Group 7 Schedule 9 VATA 1994.
- ASCL was then incorporated in 2011 and, several years later, also became a supplier to local authorities and clinical commissioning groups.
- A Group VAT registration was applied for in 2021.
- ASCL was not registered with the CQC, and so its supplies of welfare services were standard-rated.
- As a result of ASCL making taxable supplies and ASL making exempt supplies, the group was Partially exempt.
- Before the Effective Date of Registration (EDR), ASCL made no supplies, and ACL only made exempt supplies.
- The VAT in dispute related to input tax incurred on purchases both before and after the EDR.
- ASCL applied the 'use-based' method to calculate the amount of input tax to be recovered.
- The use-based method calculates the recovery of input tax by attributing the actual use or intended use of goods and services when making taxable supplies.
HMRC opened an enquiry into ASCL's VAT return and reduced input VAT from £31,727 to £7,138. HMRC adjusted ASCL's return based on a two-step calculation.
- First, the depreciated value of goods at the EDR was calculated, based on a five-year useful economic life.
- Second, they allowed input tax recovery of the VAT incurred on the calculated depreciated value at a recovery rate based on the projected taxable supplies as a proportion of total supplies over the four years after the EDR.
The First Tier Tribunal (FTT) found that:
- There is no statutory basis that takes into account pre-registration usage when calculating the deductibility of the Pre-registration input tax.
- There is also no discretion allowing HMRC to limit how much of the input tax can be credited against output tax in relation to pre- and post-EDR usage.
- Only services that are not fully consumed before making any taxable supplies and also have an enduring economic life should be taken into account when calculating allowable input VAT when applying the use-based method.
- This means pre-registration input tax is only recoverable on services that will be used when making the partially exempt supplies.
- Ultimately, the use-based method should be applied based on how goods and services are intended to be used in the future, not on how they have been used in the past during pre-registration.
The appeal was allowed.
Editor's comment
This is an important decision.
The FTT found that once recoverable pre-registration input VAT has been identified, it is treated as being incurred in the first VAT return after registration. Any partial exemption apportionment should be made based on that period, only taking into account the current or future use of the goods and services: any use prior to registration should be disregarded.
It would not be surprising if HMRC appealed this decision.
Useful guides on this topic
Input VAT claims: Pre-registration
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Health and welfare: VAT
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Partial exemption & input VAT
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Input VAT: What constitutes a valid claim (& invoice)?
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Post-deregistration VAT recovery
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A beginner's guide to VAT
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External link
Aspire in the Community Services Limited v HMRC [2026] TC09789