If you use the Flat Rate Scheme, you can’t normally claim back the VAT you spend on capital assets you buy for your business. This is already taken into account in the flat rate percentage for your type of business. However, you may be able to claim back the VAT on certain asset purchases with a VAT-inclusive price of £2,000 or more.
How to handle it in inniAccounts
inniAccounts will automatically take care of the VAT for such purchases. You must however enter details of the asset as a single transaction, rather than individual items listed on your receipt.
Take a look at our guide to see how to input your asset purchases.
HMRC rules for claiming back VAT
- 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.
- It must be a purchase of capital goods, not services. Capital goods are goods you can use in the business but are not used up by it – for example, a van, computer or bottling machine are capital goods, but not the fuel, printer ink or bottles that go in them. A van leased or hired to you is a continuous supply of services, but one bought on hire purchase is considered a supply of capital goods.
- Software is not classed as an asset for VAT purposes as it is considered a service not a good. Software cannot therefore be included within the VAT inclusive price of £2,000 for capital assets.
- You can’t claim back VAT on goods that you intend to either resell, or incorporate into other goods to supply on to someone else.
- You can’t claim back VAT on goods that you will let, lease or hire out – for example, a bouncy castle.
- You can’t claim back VAT on goods that you intend to use up (consume) within a year.
- Building materials and work are not capital goods. You can’t claim back the VAT if you have building work done (even if it includes expenditure on materials), and you can’t claim back the VAT if you buy building materials yourself for someone else to build with.
- As long as all the other conditions are met, you can claim back all the VAT even if the goods will have some private use. For example, if you buy a van but employees are allowed free use at weekends to move private belongings, you can still claim back all the VAT.
- There is an upper limit on claims for certain items. If you buy something that falls within the Capital Goods Scheme you must write and tell HMRC and leave the Flat Rate Scheme immediately. Goods that fall within the Capital Goods Scheme are computers or items of computer equipment with a VAT-exclusive price of £50,000 or more, or land and buildings, civil engineering works and refurbishments with a VAT-exclusive value of £250,000 or more.
Checking your VAT return
When you are reviewing your VAT return before we file it, you can check to make sure the VAT on your asset purchase has been reclaimed.
Normally in your calculations of VAT when using the Flat Rate Scheme, there is no input VAT shown in the calculations for your purchases. With a purchase of an asset over £2,000 you will see the input VAT listed.