Partial Exemption and pre-registration VAT recovery – Aspire in the Community case
Jaspal Dhillon, 27 April 2026
Jaspal Dhillon, 27 April 2026
The Aspire in the Community Services Limited v HMRC [2026] TC09789 tribunal case sought to reclassify the apportioning of pre-registration VAT.
HMRC were attempting to restrict recovery based on the pre-registration usage of input VAT rather than allowing it to be recovered based on how it was intended to be used after registration.
The tribunal ruled against HMRC and ensured that HMRC will no longer be able to arbitrarily restrict pre-registration claims if the VAT relates to costs that will be used to make taxable supplies after registration.
In particular, the tribunal asserted that 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 has resulted in the use-based method now having greater clarity with the notion that it should only be applied based on the intended future use for goods and services, rather than how they have been used in the past during pre-registration.
While there is still scope for HMRC to appeal the decision, it is the hope of many businesses that the new ruling will remain in effect.
This is due to many businesses, particularly those in the care sector and other VAT exempt sectors, benefiting from the enhanced scope for VAT reclamation.
While the ruling is in effect, businesses should review their handling of VAT to ensure it aligns with the new vision.
This means understanding that once recoverable pre-registration input VAT has been identified, it is treated as being incurred in the first VAT return after registration.
Likewise, 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 and any use prior to registration should be disregarded.
Our team can help you manage the impact of the tribunal ruling on your VAT obligations.
We work with you to keep you compliant and aware of any further changes that may unfold.
Get in touch with our VAT Partner, Jas Dhillon (jaspaldhillon@lubbockfine.co.uk) to learn more about how to handle your VAT.
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