Taylor
Hi all
My client incurred £2,500 VAT on legal advice in relation to a market-rate loan to a foreign charity with similar aims. The originally intended recipient was a French charity so we correctly did not recover the VAT. However my client ultimately made the loan to a US-based charity and now wish to claim back the VAT in full per SI 1999/3121.
Is this correct and what is the procedures to follow.

any information would be much appreciated.
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vatconsultant
Where you incur input VAT attributable to an intention to make an exempt supply and, before that intention is fulfilled, you use the costs in making a taxable supply, reg. 109 SI 1995/2518 allows for adjustment of the original attribution and recovery of the VAT previously disallowed. The time limit for making the adjustment is 6 years from the first day of the accounting period in which the original attribution occurred.

The provision of credit is an exempt supply to UK/EU. However certain exempt supplies when provided to non-EU counterparties are specified as allowing recovery of related costs [SI 1995/2518 Reg 103 and SI 1999/3121 refers]. Thereforeyou can recover the VAT incurred in what turned out to be a loan to a non-EU counterparty.

One would need to consider carefully whether the loan constituted a non-business activity which would not allow recovery of associated VAT on costs.
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