Flat Rate VAT

[rd409]

Under the flat rate VAT scheme you cannot reclaim VAT on
purchases unless you are buying a capital asset in excess of
£2,000 (including VAT). The following criteria must be met
for a successful reclaim of VAT:

• The purchase must be a single purchase of capital assets
with a VAT inclusive price of £2,000 or more. This is not restricted to a single item so multiple capital assets can be purchased i.e. a computer, printer and screen, however, they must be purchased at the same time from the same supplier on the same invoice to qualify

• It must be a purchase of a capital asset and not services
i.e. assets used within the business not used up by it. A laptop and printer are capital assets (provided they are not bought for resale) where as the ink and paper are not because they are consumed by the business

• You cannot reclaim the VAT on capital assets that are intended for resale or are bought on behalf of a customer/client or are let out/leased as part of your business activities

• You cannot reclaim the VAT on building materials and building work, this is because they are not capital assets even if the expenditure includes materials.

Alan

That solves my query. Thanks Alan.

[Nixon Williams]

Is it possible to pay for 6 months, and reclaim the VAT back as it would be more than £2k. I am aware that it is possible for capital purchases, but I am not sure fixed term hire of IT infrastructure can be termed as such. Accountants to verify.

Under the flat rate VAT scheme you cannot reclaim VAT on
purchases unless you are buying a capital asset in excess of
£2,000 (including VAT). The following criteria must be met
for a successful reclaim of VAT:

• The purchase must be a single purchase of capital assets
with a VAT inclusive price of £2,000 or more. This is not restricted to a single item so multiple capital assets can be purchased i.e. a computer, printer and screen, however, they must be purchased at the same time from the same supplier on the same invoice to qualify

• It must be a purchase of a capital asset and not services
i.e. assets used within the business not used up by it. A laptop and printer are capital assets (provided they are not bought for resale) where as the ink and paper are not because they are consumed by the business

• You cannot reclaim the VAT on capital assets that are intended for resale or are bought on behalf of a customer/client or are let out/leased as part of your business activities

• You cannot reclaim the VAT on building materials and building work, this is because they are not capital assets even if the expenditure includes materials.

Alan

[rd409]

On £8,000 a month you'd have sales of £96,000 on which you'd charge 20% VAT to give = £115,200. The flat rate at 14.5% would be £16,704 (plus 1% discount in the first year).

Standard scheme you'd pay VAT to HMRC of £19,200 and reclaim £100 per month on the servers to give a net liability of £18,000.

You're better off flat rate unless you have other large purchases.

This assumes £8,000 and £500 are your net figures, but the conclusion would be the same even if they are gross

Is it possible to pay for 6 months, and reclaim the VAT back as it would be more than £2k. I am aware that it is possible for capital purchases, but I am not sure fixed term hire of IT infrastructure can be termed as such. Accountants to verify.

[Ratbags]

Thanks for a brilliant straight forward answer

[Clare@InTouch]

On £8,000 a month you'd have sales of £96,000 on which you'd charge 20% VAT to give = £115,200. The flat rate at 14.5% would be £16,704 (plus 1% discount in the first year).

Standard scheme you'd pay VAT to HMRC of £19,200 and reclaim £100 per month on the servers to give a net liability of £18,000.

You're better off flat rate unless you have other large purchases.

This assumes £8,000 and £500 are your net figures, but the conclusion would be the same even if they are gross

[Ratbags]

Our company will be invoicing out around £8000 a month however we will be receiving invoices for around £500 a month for web servers we are renting to develop a new IT product.

Should we be flat rate registed if we are receiving invoices as well ???