Reply to: £2k flat rate vat rule

[css_jay99]

The VAT profit you get to retain would be £1,083. This won't change. The VAT reclaim on your laptop of £333 is exclusive of the flat rate VAT profit because on one hand you pay the VAT over to "PCWORLD or whoever" and then on the other hand you simply reclaim it. It doesn't effect the flat rate VAT gain you make.

I should have said:
"2. It doesn't have an effect on the flat rate profit. The amount of VAT you have to pay over to HMRC will be reduced by £333 because you're reclaiming the VAT back in full on your laptop purchase."

Sorry if I misled.

OK , Thanks guys i now understand.

However I am still left with £333 in by VAT liability account in SAGE and dont know how to get rid of it.

I supect that I should have entered VAT liability in sage as £6,917 (£7,250-£333) instead of £7,250 ... but i suspect that might bring its own issue as well


css_jay99

[Craig@Clarity]

The VAT profit you get to retain would be £1,083. This won't change. The VAT reclaim on your laptop of £333 is exclusive of the flat rate VAT profit because on one hand you pay the VAT over to "PCWORLD or whoever" and then on the other hand you simply reclaim it. It doesn't effect the flat rate VAT gain you make.

I should have said:
"2. It doesn't have an effect on the flat rate profit. The amount of VAT you have to pay over to HMRC will be reduced by £333 because you're reclaiming the VAT back in full on your laptop purchase."

Sorry if I misled.

[Bod]

Are you saying that I have to then subtract the £333 from £1083 to arrive at the new FRS profit?. I dont understand thiscss_jay99

No, that can't be right. The FRS "profit" is based on your sales, not on your costs.

Your "normal" liability to HMRC would be £7,250 - I would think in this case it will be £7,250-£333 = £6,917

You could think of the £333 as "extra" FRS "profit" - but it isn't since your co has already paid that VAT out - it's a refund, not extra profit.

Wait for an accountant to confirm all of this though ;-)

[css_jay99]

1. You do if you intend to claim the VAT back on your equipment purchase.
2. It does have an effect on the flat rate profit. The profit will be reduced by £333 because you're reclaiming the VAT back in full on your laptop purchase.
3. If you sell it, it must be sold with VAT. If it is simply disposed of, then there could be an accounting and tax adjust under profit/loss on disposal of fixed assets.

I am slightly lost on the impact on the FRS profit so here are some sample figures .....

assume :-
Sales inclusive of VAT for quarter is 50,000 (VAT value is £8333)
Industry FRS Rate 14.5%
VAT on Qualifying Fixed Asset of eligible for reclaim is £333 (i.e. £2000 * 20%)

Normally FRS VAT will be (50,000 * 14.5%) = £7250
Hence profit on FRS will be £8333 - £7250 = £1083

Are you saying that I have to then subtract the £333 from £1083 to arrive at the new FRS profit?. I dont understand this



css_jay99

[Craig@Clarity]

Hi,
I am on Flat rate scheme and have always prepared my accounts myself yearly taking into account the accounting treatment/journal entries to move the "profit" on FRS into the P&L A/C

Well this year I bought 2 laptops totalling over £2000, which means I have to reclaim the VAT and use Journal entries in my SAGE software to complete the transactions.

Bearing in mind as well that I have always recorded Fixed Asset purchases on Balance sheet inclusive of VAT since VAT cannot be reclaimed

Questions are: -
1) Do I need to record the new fixed assets Exclusive of the VAT to be reclaimed?
From double entry point of view to keep audit do I used full cost + VAT and then journal out the VAT to be reclaimed?
2) Does the VAT amount attributable to the fixed asset purchase have any impact on the "profit" on FRS going into the P&L A/C? ........ I am guessing NO because the attributable profit is based on my sales and not the Fixed asset purchase
3) Will there be any special treatments on disposal of that fixed asset ?. I am guessing no since it will be pooled anyway


cheers
css_jay99

1. You do if you intend to claim the VAT back on your equipment purchase.
2. It does have an effect on the flat rate profit. The profit will be reduced by £333 because you're reclaiming the VAT back in full on your laptop purchase.
3. If you sell it, it must be sold with VAT. If it is simply disposed of, then there could be an accounting and tax adjust under profit/loss on disposal of fixed assets.

[css_jay99]

Hi,
I am on Flat rate scheme and have always prepared my accounts myself yearly taking into account the accounting treatment/journal entries to move the "profit" on FRS into the P&L A/C

Well this year I bought 2 laptops totalling over £2000, which means I have to reclaim the VAT and use Journal entries in my SAGE software to complete the transactions.

Bearing in mind as well that I have always recorded Fixed Asset purchases on Balance sheet inclusive of VAT since VAT cannot be reclaimed

Questions are: -
1) Do I need to record the new fixed assets Exclusive of the VAT to be reclaimed?
From double entry point of view to keep audit do I used full cost + VAT and then journal out the VAT to be reclaimed?
2) Does the VAT amount attributable to the fixed asset purchase have any impact on the "profit" on FRS going into the P&L A/C? ........ I am guessing NO because the attributable profit is based on my sales and not the Fixed asset purchase
3) Will there be any special treatments on disposal of that fixed asset ?. I am guessing no since it will be pooled anyway


cheers
css_jay99

[matzie]

I'm having some fun with this at the moment. I want to buy one of the new Macbook Airs, and take it over the £2k limit with the new "Thunderbolt display" which isn't released yet. Apple won't ship the items separately, so I either need to wait until the display is available (6-8 weeks) or order from a reseller who will do split shipping (and it's been a struggle to communicate with the three ones I've already contacted for quotes - they don't seem to understand why I don't just place two orders)

I'm considering whether "single purchase" might stretch to "two transactions made seconds apart"... FRS6500 is the only place where invoices are specifically mentioned in HMRC docs that I can see, and VAT 733 doesn't *entirely* rule out what I'm thinking about... but it does feel a little risky.

[Greg@CapitalCity]

In my view that means you can buy a package deal that includes various items, but you cannot just buy a lot of little things that would usually be consumables (and written off to the P&L) just to make it £2,000.

Yep, sounds right to me too.

[2Niels]

Thanks for the info.

The software is design-related and I would expect to renew/upgrade it in about 3 years time - it would certainly last longer than 12 months. Surely then this is a capital expense?

Newbie - regarding the Flat Rate scheme... this is specifically about the Flat Rate Scheme. Normally under the FRS you would not be allowed to reclaim VAT on purchases. However, if you make a single capital purchase of £2,000 or more (including VAT), you can claim back the VAT in full on this. If you were on normal VAT rules, you would claim back the VAT on all purchases.

[contractor55]

Hi

Does this inlcude if you are on the flat rate scheme? As I`m on the flat rate scheme I do not claim back any VAT however are you saying if I do a single invoiced purchase above £2k I can claim back the VAT on this ?

thanks

[SueEllen]

Odd that software doesn't count - surely it's capital expenditure - unless I guess it has an expected one year lifespan, like anti-virus software which effectively has to purchased every year.

But most software is designed to last for more than a year, which normally meets the capital requirement.

Any linky on this?

HM Revenue & Customs: Flat Rate Scheme for VAT

Should take you to the correct section otherwise scroll down for "Claiming VAT back on capital assets".

[centurian]

Odd that software doesn't count - surely it's capital expenditure - unless I guess it has an expected one year lifespan, like anti-virus software which effectively has to purchased every year.

But most software is designed to last for more than a year, which normally meets the capital requirement.

Any linky on this?

[srennocks]

No, software can't be counted. Already done this (last financial year) and doesn't have to be single item, it's single invoice that counts, so I bought Apple Mac + monitor + iPad all from same place and on one invoice

[2Niels]

Interesting thread.

I'm looking to buy a single iMac, memory and storage upgrades at around £1850. I'd also like to buy software (which will be installed on the computer) at the same time, on the same order valued at around £450, taking the overall order to £2200 ish.

Would the software be included in the overall bundle price and qualify for the VAT rebate?

[Fred Bloggs]

You can't be 100% tax compliant.

That way HMRC can threaten you with a fine and if you don't know the right accountants/tax lawyers you will be scared enough to pay up.

I mean they have screwed up the PAYE system for people who only get paid via an employer, so there is no hope for small businesses and the self-employed.

It's my duty to strive for 100% tax compliance and I aim to be so. However, I do agree with your sentiment. It just shows how far down the road of economic destruction the UK has travelled since 1997 when NL set about their demolition job in the name of "fairness". I fear the situation is permanent and irreversible.