Flat Rate Scheme VAT query - capital expenditure

Flat Rate Scheme VAT query - capital expenditure

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 A VAT registered partnership trading as a campsite/caravan park/temporary hard standing wigwam accommodation is registered under the Flat Rate Scheme for VAT.

They have incurred costs of approximately £45,000 +VAT for the building of a shower block, which has been invoiced and paid in a number of stage payments (all over £2,000).  In addition, from the Rural Payments Agency, they have received grants in the region of £25,000 - I'm not sure if these are specifically towards the shower block, or for the business in general.

Also, they have had installed a number of wigwams during the year, which they purchase ready built, and they slot on to a pre-made concrete base.

My questions are:

a) Is the VAT recoverable on the shower block?

b) What treatment would the grants received have for VAT under the Flat Rate Scheme?

c) Is the VAT recoverable on the wigwams, and the concrete base?

My confusion has arisen as I am not sure whether the capital expenditure fits in to the goods or services aspect of the Flat Rate Scheme, which I believe might be an issue for being able to recover the VAT.

I look forward to hearing from anyone who can give me any guidance on this.  Many thanks.

Replies (2)

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chips_at_mattersey
By Les Howard
29th Jun 2011 10:17

Flat Rate Scheme - whether input tax is allowable

1. the easier question is the grant received. Non-business income is excluded from turnover for the FRS. The grant is (probably) non-business. You should check that this is not in return for services delivered to the grantor.

2. Whether the shower block is 'capital expenditure goods.' Notice 733, para 15.4 suggests that construction work is a supply of services. This would mean that the input tax is not allowable. You can, of course, challenge their interpretation!

3. whether the installation of the wigwams is 'capital expenditure goods.' I am inclined to say that they are. The service is evidently installation, not construction. Thus, this input tax looks like it can be recovered.

My question, in conclusion, is whether the Flat Rate Scheme is appropriate for this business? He is losing £9,000 (input tax on construction of shower block). Is the Flat Rate Percentage low enough to be beneficial to him?

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By cmclaren1978
29th Jun 2011 10:26

Previous agent advice!

 It is a job we have only just taken on, and the Flat Rate Scheme VAT-position on the shower block is something which I thought was questionable.

 

I am not sure who decided on the FRS, but suspect it was the previous agent/bookkeeper - in hindsight, it doesn't look a good decision on paper.

 

At least it seems to be good news about the wigwams!

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