Accounting for VAT with capital expenditure

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi,

I am finishing off my devolved later on today - i have been looking through the text book and cant find any where a mention on how to deal with VAT on captial expenditure.

For example:

If i bought a van for 10,200 - including 1,750 VAT and 200 Road fund licence.

Would i debit the motor vehicle account 8,250 and credit the bank with the same, then do 1,750 debit in the VAT account and the double entry in the bank. then do 200.00 debit in motor vehicles expense and the double entry to the bank?

im totally confused with VAT and capital :(

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting for VAT with capital expenditure

    Hi

    That sounds like a possible trick question. In theory you can claim the VAT back on a vehicle that will be used absolutely 100% for business use. However, if there is the slightest possibilty of being used for even the smallest personal use, then HMRC wont let you claim back the VAT.

    Neil
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting for VAT with capital expenditure

    I will re-read the question again then - to make it even more complex, i believe that there is an accrual in there somewhere too. unfortunatly the devloved is the one i sat in december 05 that i am finally finishing off now that my tutor has returned from illness.

    So if VAT can be claimed back, the method i described would be correct?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting for VAT with capital expenditure

    Are you sure you have go the question right because if the cost of the van was only £8250 then the VAT would be £1443.75. Therefore I think it is:

    Orginal Van cost £10000 - DR Fixed account
    Van VAT £1750 - DR VAT
    Road Tax £200- DR Vehicle Expenses

    Bank - Cr 11950
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting for VAT with capital expenditure

    so you would debit the van account with the full amount then? i always wondered if you had to take the VAT amount off for the van account.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accounting for VAT with capital expenditure

    Hi the journal required would be-

    DR Motor Vehicles 8,250
    DR VAT A/C 1,750
    DR Motor expenses 200
    CR Bank or Creditor 10,200

    You need to remove the Road fund as this is not capitilised.

    Normally VAT is reclaimed on all commercial vehicle purchases, therefore you need to Dr the VAT account.

    Hope this helps.

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