Reclaiming VAT on capital assets over £2,000
Posted on 22nd October 2020
You may know that you can't usually claim back VAT on any capital assets bought for your business when using the flat rate scheme, as this has been taken into account in the flat rate percentage for your category of business already. However, the good news is that you can claim it back on certain capital assets when the amount of the purchase is £2,000 or more, including VAT.
How does the claiming back work?
When it comes to reclaiming the VAT, there are a few HMRC rules that must be adhered to which are used to determine if a supply falls under the category of a good or service, and whether it constitutes as one purchase or more.
For the claim to be valid, your purchase must be a single purchase of capital assets for £2,000, VAT-inclusive. However, this doesn’t restrict you from claiming back exclusively on a single item. You could buy several items together at the same time, from the same supplier, and if the price still totals £2,000 plus VAT, then your claim will still count!
You will only be able to claim on the purchase of capital assets (or goods) but not services. This could include items such as computers, a van, a camera, printer etc. which can be used for your business but goods which are used up by these assets do not count. For example, printer ink, petrol for the van, and the hiring of any equipment will always count as a service.
It is also important to note that building work and materials do not count as capital assets and cannot be claimed back either. This even includes expenditure on materials or personally buying building materials with the intention of having someone else use them.
When it comes to technology, computer software is also classed as a service, not a good, and cannot be classed as an asset. It, therefore, does not count and cannot be included when making a VAT claim on capital goods, even if the software purchase is over £2,000 or more.
Further HMRC guidelines also state that VAT cannot be claimed on goods that you intend to use up within the space of a year, lease or hire out, or that you intend to supply to others or resell. You can, however, still make a claim if you intend to use your assets for private use, as long as all other HMRC rules have been followed.
Lastly, it is essential to know that you need to leave the flat rate scheme and inform HMRC immediately should you buy anything that falls within the capital goods scheme. Certain items also have an upper limit when it comes to making a claim. Assets that fall within this scheme include any land, buildings or refurbishments and civil engineering works with a value of £250,000 VAT-exclusive or more.
You will also need to notify HMRC and leave the Flat Rate Scheme should you make any computer, or computer equipment, purchases with a VAT-exclusive value in excess of £50,000 or more.
VAT was introduced as a 'simple' tax but most business owners would probably agree that it's anything but! With that said, it's important to make sure you get it right; it's not worth a fine (or worse) if you make an error which could've been avoided had you had an accountant (like us!) on your side. Feel free to book a call in with us to discuss your requirements - we'd love to hear from you.
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
Tagged as: VAT
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