VAT and Private Use and benefits
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Hi
I've got a limited company that wants to buy a computer for use by it's staff. It will be run from home and lets say 50% of the use of the computer will be private.
I've read the VAT guides etc and from what I can gather:
When an asset, eg a computer is purchased, if that asset will be used 50% privately then I can only reclaim 50% of the VAT?
Therefore entries will be:
Dr Comp Equip. £500
Dr VAT £43.75
Dr ?? Where does the remaining 50% of the VAT go?£43.75??
Cr Bank £587.50
-What happens to the 50% private use of the VAT?
Then, becuase there is a benefit to the employee of private use of this asset, is there a PAYE liability?
Thanks in advance for you help!!
Also, when the asset is to be sold a couple of years down the line, do I just charge 50% of the VAT rather than 100%?
I've got a limited company that wants to buy a computer for use by it's staff. It will be run from home and lets say 50% of the use of the computer will be private.
I've read the VAT guides etc and from what I can gather:
When an asset, eg a computer is purchased, if that asset will be used 50% privately then I can only reclaim 50% of the VAT?
Therefore entries will be:
Dr Comp Equip. £500
Dr VAT £43.75
Dr ?? Where does the remaining 50% of the VAT go?£43.75??
Cr Bank £587.50
-What happens to the 50% private use of the VAT?
Then, becuase there is a benefit to the employee of private use of this asset, is there a PAYE liability?
Thanks in advance for you help!!
Also, when the asset is to be sold a couple of years down the line, do I just charge 50% of the VAT rather than 100%?
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Comments
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Re:VAT and Private Use and benefits
Hello Ann,
I would have thought that the extra VAT would go toward the PAYE liability. You are correct in thinking that there is a liability. I went on an HMRC workshop dealing with expenses and benefits earlier this year. Their workbook says that "in general, employees are liable to pay tax on 20% of the value of the asset when first provided." This would then go onto a P11d.
Using your figures:
Value £500
Annual cost to employee = 20% = £100
Later, when you sell the asset I would think that 100% of VAT is charged but I hope someone else can clarify this.
Regards,
Ben0 -
Re:VAT and Private Use and benefits
My reply will be brief but will directly answer your question:-
Your missing bookkeeping entry would go to the directors loan account.
Ben has given you the correct treatment with regard to the benefit in kind so you would have to report £100 on the employees Plld regardless of the 50/50 split.
Can you honestly say that anyone is going to want to buy a computer that is two years old? It has only cost £587.50 brand new! All i'm saying is I wouldn't worry to much about this but you would have to charge the VAT percentage of VAT if you want a straight answer
Regards
Dean0 -
Re:VAT and Private Use and benefits
Hello
thanks for your replies.
I can see the benefit in kind situation now.
And i phoned the VAT ehlpline and they confirmed the situation with only reclaiming the business use of the VAT.
However, I'm confused as to posting the remaining VAT to the Director's Loan account.
Would this be a loan from Director to Company,
Or
from Company to Director?
Why am i posting to the directors loan account?
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Re:VAT and Private Use and benefits
Anne,
The director's loan account is often used to balance accounts. If the company owes money as in your case then the directors get the benefit. However, if the transaction costs the company money then the liability rests with the directors.
You have to be careful, though. If the director's loan account is heavily in credit on the companies book then the directors will be liabile for a very large tax bill at the end of the year since this will have to go on their P11d.
Ben0 -
Re:VAT and Private Use and benefits
Ben do you mean Debit rather than Credit.
You have to watch that the directors' account doesn't go overdrawn i.e in Debit. Back to basics here but a debit in the companies balance sheet is an asset therefore the director owes this money back to the company.
There is no tax implications with a Credit balance. That's what you want all the directors to have, in an ideal world!
Regards
Dean0 -
Re:VAT and Private Use and benefits
Hmm.. I would disagree with most of the above (but that's not unusual!)
1. Why are you debiting the DLA? The non-claimable VAT is still a legitimate business cost. It should be added to the net cost of the asset i.e. £543.75.
2. Are you really going to adjust for 50% private use of a computer for staff? By 'staff' do you mean the owner/director of a one-man-band company or do you really mean other employees? Either way, I would only make a P11D benefit if it was genuinely non-business e.g. a laptop was provided to the employees wife for her use. Personal use of a computer is usually incidental to the business use.
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Re:VAT and Private Use and benefitsdeanshepherd wrote:1. Why are you debiting the DLA? The non-claimable VAT is still a legitimate business cost. It should be added to the net cost of the asset i.e. £543.75.
I would argee with that but there is still a private element so wheather you restrict it in the accounts or on the comps the net effect is the same.2. Are you really going to adjust for 50% private use of a computer for staff? By 'staff' do you mean the owner/director of a one-man-band company or do you really mean other employees? Either way, I would only make a P11D benefit if it was genuinely non-business e.g. a laptop was provided to the employees wife for her use. Personal use of a computer is usually incidental to the business use.
Exactly why my initial reply was brief.
Regards
Dean0 -
Re:VAT and Private Use and benefits
Hi
Thank you or your replies.
I haven't studied DFS yet (starting it in January) - I assume this Directors Loan Account must be in that? I will read up on that.
The situation is that the company has 2 staff members and is run from home. Staff being the Director, and a company sec.
The PC was bought prior to VAT registration but whilst the company was trading.
The director really wants the PC to be listed as an asset of he company to get the Capital Allowances on it.(I know these will be 50% restricted to business use).
So, I claim back only 50% of the VAT. The other 50% goes to the DL a/c where it is an asset to the company becuase the director is paying it back to the company.
Then benefits wise... the director is receiving a benefit of 20% of (the NET value??) of the computer and so is taxed on this. This is input into the P11D.
I think I understand this now - pls correct if I am wrong though!!
Thank you for your help.
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Re:VAT and Private Use and benefits
If you are restricting the private element on the comps then your missing posting should, as deanshepherd said be posted to assets.
Regards
Dean0 -
Re:VAT and Private Use and benefits
Anne
Unfortunately not every situation is covered by the AAT syllabus and I would guarantee this one isn't.
My own firm currently has two staff and there is no way I would make any private use adjustment for the VAT on my computer and certainly wouldn't include a benefit in kind on the director/company secretary.
My advice would be to check with your manager/partner on how they want you to proceed before doing any unnecessary work.
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