Expenses - how much will the item cost me?

[notforgoogle]

Hi all

I am about to start purchasing things for my business. I have decided that as I am on the flat rate scheme I might as well get a computer + equipment which is > 2k in value (would have spent around this amount anyway)...

1) If I spend more than 2K then I will recoup the VAT and then 21% of this value as well (due to lowering my overall corp tax bill?

2) My overall corp tax bill will be reduced so saving me 21% on the item(s)

3) If the total is below the 2k then I am going to save myself 21% and thats it due to the flat rate scheme...

Any responses to these 3 questions is appreciated

[Gonzo]

There is an old maxim that you shouldn't let the tax tail wag the dog.

£2K is quite a lot of money these days to spend on computer equipment, you can easily get a decent PC and laser printer for less than half that.

There are other threads asking the question about whether you can get a purchase for multiple items to all count towards the £2K FRS VAT reclaim amount, I don't remember the outcome.

Even assuming that you can, is it really worth spending the extra money to save the VAT?

However much you spend, providing that it is a valid business expense , will reduce your corporation tax bill.

[Maslins]

Agree with Gonzo.

If you're going to think about your purchases this way, make sure you do the same with your income. ie someone pays you £1,000+VAT = £1,150, you'll instantly lose ~£130 in VAT and ~£215 in corporation tax. You'll be very disappointed come year end if you think of all your purchases net but income gross.

As an aside, the basic rule re: the £2k is it can be multiple items bought as part of the same bundle. Quote from HMRC:

It must be a single purchase of capital goods with a VAT-inclusive price of £2,000 or more. That doesn't mean you are restricted to claiming back the VAT on a single item - for example, you could buy a pizza oven, fridge and dishwasher, as long as you buy them at the same time from the same supplier and the price is more than £2,000 including VAT.

[lje]

You are correct that you would 'save' 21% corporation tax on the purchase irrespective of the amount you spend. If you spend over £2000 on the bundle you would also save the VAT - but as others have pointed out you need to think about whether you need to spend that much and whether you're really saving overall if you spend more than you need to.

Also, if you are a 40% tax payer due to salary and dividends then you may save more on your purchase (irrespective of whether you spend over £2000) as it could reduce your dividend level and hence the extra tax you pay on your dividends. If you keep your income below the 40% threshold then you won't save anything extra.