Q: I am an IT consultant on the flat rate scheme. I intend to buy a new computer and printer and the total cost is more than £2000. I have been advised to buy the computer and printer from the same supplier at the same time so that the purchase qualifies as capital expenditure goods and the VAT incurred can be recovered. However, I will also use the computer and printer for private purposes. Does this mean that I will need to restrict a proportion of the input tax incurred to reflect the private use?
A: Under normal accounting rules there are two methods of dealing with VAT incurred on the purchase of goods which will be put to both business and private use. The primary method of dealing with the input tax is to apportion it at the time of purchase. The second method (often referred to as the “Lennartz mechanism” after the ECJ case which confirmed the principle) involves claiming all of the input tax at the time of purchase. Thereafter, on a periodic basis, an adjustment must be made and output tax accounted for on the private use that has arisen in that period.
However, to help to simplify the flat rate scheme, where VAT on capital expenditure goods is reclaimable, the intended use of those items is treated as wholly for taxable purposes. This means that you do not need to apportion input tax to cover any planned private (or exempt) use of the goods. You are therefore entitled to recover all of the input tax incurred on the computer and printer.
The flat rate scheme has certainly simplified the completion of VAT returns for small businesses and for many businesses there are significant gains to be made by using the scheme. Although, these may be significantly reduced from April this year following the introduction of the anti-avoidance rule for low cost traders.
To read more about Flat Rate Scheme changes click here.
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