VAT reclaim – When things don't go to plan

The payback and clawback rules apply when VAT recovery changes due to a shift in business use.

• Payback: If taxable use increases, previously unclaimed input tax can be reclaimed. Example: office equipment costing £1,200 (incl. VAT). If use changes from 50% to 70% business, an extra £40 VAT can be reclaimed.

• Clawback: If taxable use decreases, VAT must be repaid. Example: a developer claims input VAT when planning to sell (zero-rated), but later rents the property (exempt). HMRC requires repayment.

Mixed-use outcomes (taxable + exempt supplies) create residual input tax adjustments. For property, adjustments can be spread over 10 years. No clawback applies if the repayable amount averages under £625/month and under 50% of input VAT.

Key case: Briararch Ltd & Curtis Henderson Ltd (1992) – courts ruled clawback only partly applied since the business still intended a taxable supply.

Practical point: If the change of intention happens within six years, input tax is repaid in the quarter of change; the original claim remains valid.