VAT claim on financed software - flat rate VAT scheme
Discussion
Our accountant is on holiday for a few days (how dare he!) so I haven't really had a proper answer on this.
Our business needs to purchase some software.
License cost ~£6k
Annual support first year £1.5k
The company who provides the software can finance 90% of the cost over 3 years at a favourable rate.
My question is this:
As we're registered on flat rate VAT scheme we could generally claim VAT back on purchases over £2k only. But in this case we will never see an invoice over £2k, our payments will be spread across 3 years as much smaller amounts.
I've been advised that we should be able to claim the VAT back on the £6k purchase aspect but probably not the the support cost. Does that sound right?
Our business needs to purchase some software.
License cost ~£6k
Annual support first year £1.5k
The company who provides the software can finance 90% of the cost over 3 years at a favourable rate.
My question is this:
As we're registered on flat rate VAT scheme we could generally claim VAT back on purchases over £2k only. But in this case we will never see an invoice over £2k, our payments will be spread across 3 years as much smaller amounts.
I've been advised that we should be able to claim the VAT back on the £6k purchase aspect but probably not the the support cost. Does that sound right?
Not sure its of interest, but all i do (bar the odd car), is finance 100% of software/services (CAD software mostly) for UK SME's, typically on a 3 year finance lease.
However, using that route, as you say, there wouldnt be an invoice for you for over £2k. With that in mind, it might make more sense to perhaps finance the software via a loan instead? That way you can provide the full invoice to HMRC and re-claim the VAT, whilst still being able to pay for the software on a monthly basis
Drop me an email if you think that might help.
However, using that route, as you say, there wouldnt be an invoice for you for over £2k. With that in mind, it might make more sense to perhaps finance the software via a loan instead? That way you can provide the full invoice to HMRC and re-claim the VAT, whilst still being able to pay for the software on a monthly basis
Drop me an email if you think that might help.
deggles said:
I'm not an accountant but used to be on the Flat Rate Scheme. My understanding was it's only actually 'capital assets' over £2k that are eligible for reclaim; I don't think a software license or support would qualify.
Yeah. I read a bit more since I posted the question and have read that a few times. I have read counter arguments too. Seems ridiculous to me that a purchase of that nature could be considered as anything other than a capital asset. It's a perpetual license and every bit as important as the PC it will be installed on. Right now, because I need it, I'm inclined to go ahead and buy it and sort out whether it's claimable later. If it is, then great. If not, well we need it anyway so...Sir_Dave said:
Not sure its of interest, but all i do (bar the odd car), is finance 100% of software/services (CAD software mostly) for UK SME's, typically on a 3 year finance lease.
However, using that route, as you say, there wouldnt be an invoice for you for over £2k. With that in mind, it might make more sense to perhaps finance the software via a loan instead? That way you can provide the full invoice to HMRC and re-claim the VAT, whilst still being able to pay for the software on a monthly basis
Drop me an email if you think that might help.
Brilliant, PM incoming. However, using that route, as you say, there wouldnt be an invoice for you for over £2k. With that in mind, it might make more sense to perhaps finance the software via a loan instead? That way you can provide the full invoice to HMRC and re-claim the VAT, whilst still being able to pay for the software on a monthly basis
Drop me an email if you think that might help.
If it is a regular monthly "rental" type agreement with no transfer of ownership at the end of the agreement, it is not a capital transaction.
If you were paying rent for the building you use for business and the landlord was charging VAT on the rent (some do), you would not be able to reclaim the VAT on the rent for the same reason.
The solution is to leave the Flat Rate Scheme.
If you were paying rent for the building you use for business and the landlord was charging VAT on the rent (some do), you would not be able to reclaim the VAT on the rent for the same reason.
The solution is to leave the Flat Rate Scheme.
Eric Mc said:
If it is a regular monthly "rental" type agreement with no transfer of ownership at the end of the agreement, it is not a capital transaction.
If you were paying rent for the building you use for business and the landlord was charging VAT on the rent (some do), you would not be able to reclaim the VAT on the rent for the same reason.
The solution is to leave the Flat Rate Scheme.
It isn't rental, it's an outright purchase of a perpetual license. If you were paying rent for the building you use for business and the landlord was charging VAT on the rent (some do), you would not be able to reclaim the VAT on the rent for the same reason.
The solution is to leave the Flat Rate Scheme.
There is a separate optional annual support cost which I realise cannot be claimed.
Eric Mc said:
What do you own at the end of the deal?
Can you sell the asset on to someone else when the deal is finished?
Being that its 100% software and services, itll likely be a fixed term finance lease, so title will pass from the funder to the broker at the end of term, who will then pass it onto the customer. Typically VAT would be paid on the monthlies, instead of up front to the supplier in the case of a HP/Loan. The software will be registered to Gad-Westy on Day by the software author, so from a licencing perspective it cant be assigned to another entity.Can you sell the asset on to someone else when the deal is finished?
In a normal VAT situation, the finance lease monthly VAT wouldnt be an issue as it would be reclaimed as per normal, but the Flat Rate Scheme does add an additional layer of complication that im interested to hear your opinion on. From my understanding, there would e no VAT reclaim possible on Finance Lease, but it would be on HP/Loan/Cash purchase?
Edited by Sir_Dave on Friday 21st February 10:48
If it is a finance lease, it CAN be treated as a capital cost., However, the terms and conditions of such leases are often open to interpretation as to what constitutes a capital transaction. It isn't always clear.
If in doubt, the best course of action is to write to HMRC explaining the situation and ask for a ruling. You could even send to them a copy of the agreement. A VAT ruling has a legal aspect to it in that once a ruling has been made, as long as you follow that ruling, there is no comeback against you.
If you don't like the decision arrived at by HMRC, you can appeal to a VAT Tribunal.
If in doubt, the best course of action is to write to HMRC explaining the situation and ask for a ruling. You could even send to them a copy of the agreement. A VAT ruling has a legal aspect to it in that once a ruling has been made, as long as you follow that ruling, there is no comeback against you.
If you don't like the decision arrived at by HMRC, you can appeal to a VAT Tribunal.
Gassing Station | Business | Top of Page | What's New | My Stuff