Flat Rate Scheme Help!

sarahuk3
sarahuk3 Registered Posts: 31 ? ? ?
Good Afternoon,

I have recently taken on a client and will be carrying out some bookkeeping work for him.

He is on the flat rate scheme, and has queried whether he can reclaim the VAT on two invoices (both totaling over £2000)

The first is 'software development' price £1485.00
Included in this invoice is annual hosting, price £275.00
VAT £352.00
Total £2112.00

My initial though is no, he cannot reclaim this as software isn't necessarily a capital asset? and as annual hosting would be revenue expenditure, it doesn't total more than £2000 inc vat.

The second invoice computer equipment £1817.00
VAT £363.40
Total £2180.40

If anyone could confirm that i am right in thinking he cannot claim the first invoice but can the second??

Thanks in advance.

Sarah

Comments

  • reader
    reader MAAT, AAT Licensed Accountant Posts: 1,037
    Although I've come across the FRS in practice I've never come across the situation you've detailed.

    However I've taken a look at the HMRC website:

    http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm

    and I believe that you are correct on both accounts.

    1) Can't claim VAT due to annual hosting (revenue expenditure) taking VAT-inclusive amount below £2,000.

    2) Can claim VAT because PC is a good not service, VAT-inclusive amount is above £2,000 and its obvious he's not a PC reseller

    Just out of interest, I was just wondering if you are stilll doing AAT or are in the middle of gaining your MiP practicing licence? If you're in the middle of gaining your licence, how are you finding meeting all the different criteria? (I ask because I've just finished AAT and want to go on and get a MIP practicing licence).
  • sarahuk3
    sarahuk3 Registered Posts: 31 ? ? ?
    Thanks for the reply, just needed someone to confirm my thoughts!

    I am still studying the AAT Technician level at the moment, hoping to finish this year.

    Congrats on completing the AAT, and hope it all goes well with gaining the licence.

    Sarah
  • dyzio
    dyzio Registered, MAAT, AAT Licensed Accountant Posts: 35 Regular contributor ⭐ ? ⭐
    Hi there,
    I know it's a bit late, but I just saw this thread. I am doing my husbands books, and he is on the FRS. The scheme has been designed to keep the VAT simple. You cannot reclaim any VAT on anything, as far as I know. You apply the flat rate to total turnover (including VAT) and that is what you pay to HMRC.
    If you follow the link you've got above...
    'If your VAT taxable turnover is less than £150,000, you could simplify your VAT accounting by calculating your VAT payments as a percentage of your total VAT-inclusive turnover. Although you cannot reclaim VAT on purchases - it is taken into account in calculating the flat rate percentage - the Flat Rate Scheme can reduce the time that you need to spend on accounting for and working out your VAT. Even though you still need to show a VAT amount on each sales invoice, you don't need to record how much VAT you charge on every sale in your accounts. Nor do you need to record the VAT you pay on every purchase.'
    Does it help?
    Agata
  • sarahuk3
    sarahuk3 Registered Posts: 31 ? ? ?
    Hi Agata,

    Thank you for your post.

    You can reclaim VAT on capital assets with a VAT inclusive price of £2000 or above. (on the HMRC website - 'claiming back VAT on capital assets' in the flat rate VAT section.

    I was checking that the hosting is revenue expenditure therefore not being able to reclaim any VAT.

    Sarah
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