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HMRC internal manual

VAT Registration

Voluntary registration: claw back of input tax: introduction

An intending trader may deduct input tax relating to taxable supplies which he intends to make at some time in the future. If at any time his intention changes, he may be required to repay all or part of the tax deducted (this is often referred to as ‘claw back’). The change of intention could occur:

  • simply because the intention to trade lapses
  • because an exempt supply has been made instead of a taxable supply
  • because the goods and services in respect of which the input tax was provisionally deducted have been diverted to a non-business purpose.

A common example would be a property developer who intended to use a building to make a taxable supply, subsequently made a short term exempt supply, but still intended to make a taxable supply of the building at some time in the future.