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Purchasing Iris Software and FRS

Purchasing Iris Software and FRS

Our firm is looking to change the accounting software used, to Iris.  My question is can the VAT element of this be reclaimed even though we're on the Flat Rate Scheme, under the capital goods rules.

I've checked elsewhere but can only see details of computers purchased, as opposed to software.

Thanks!

Mike

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04th Mar 2016 10:43

Goods / Services

Well is the software goods or services? I would say the latter and non-recoverable.

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04th Mar 2016 11:06

Thanks for your reply.

I would argue the software is actually goods - Iris aren't providing a service, they are supplying goods that incorporate their features which could be seen as a service, but ultimately we're buying goods that enable us to provide a service to clients.

 

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04th Mar 2016 11:10

How do you treat IRIS?
Do you treat it as an asset?

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04th Mar 2016 11:14

Well if you are confident, go ahead and claim it. But you would be wrong in doing so.

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04th Mar 2016 11:14

Services

The ECJ concluded in the case of Aktiebolaget NN v Skatteverket (Case C-111/05) 2008 that

“supply of goods” shall mean the transfer of the right to dispose of tangible property as owner”

Even if the software was supplied on CDs, you do not have the right to dispose of it under nearly every software licence that I have seen.

I'm not aware of any later decistion to overturn the above, but this being AccountingWeb I'm sure that I'll soon find out!

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04th Mar 2016 11:35

Does notice 702 help?
7.2 What is ‘normalised’ software?

 

Products containing ‘normalised’ software are mass produced items which are freely available to all customers and usable by them independently after installation and limited training in a standard form to carry out the same applications or functions. They are made up of a coherent set of programs and support material and often include the service of installation, training and maintenance. Personal computer software, home computer software and game packages are in this category. Also included are standard packages adapted at the supplier’s instigation to include security or similar devices.

 

7.5 What is the basis of the value for import VAT? 

Under Section 21 (1) of the VAT Act 1994, the value of imported goods shall be determined according to the rules applicable in the case of Community Customs duties. (See paragraph 7.1). For a full description of Place of Supply of services see Notice 741 (before 1 January 2010) and Notice 741A.

Normalised software. Import VAT is due on the Customs value of the software, For example, the total value of the carrier medium and the data and instructions (the software) on it, adjusted where appropriate in accordance with Section 21 (2) of the VAT Act 1994Specific software. No import VAT is due. The total amount of the value of both software and carrier medium is treated as the consideration for the supply of services and is taxed accordingly within the member state concerned

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04th Mar 2016 11:39

Does notice 702 help?
No

Does notice 702 help?

No

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04th Mar 2016 11:55

Unhelpful

cheekychappy wrote:

Does notice 702 help?

No

Unhelpful answer without an explanation.

OP also see:-

http://www.taxadvisermagazine.com/article/goods-or-services

&

http://www.taxation.co.uk/taxation/Articles/2013/07/31/311221/input-vat-...

HMRC regard a software system as a supply of goods if it consists of mass produced items that are freely available to all customers and usable by them independently after installation and limited training in a standard form to carry out the same applications or functions, see HMRC Notice 702 (August 2012), paragraph 7.2.

However, if a software system consists of items made to customers’ special requirements, either as unique programs or adaptations from standard programs, HMRC regard it as a
supply of services – see HMRC Notice 702 (August 2012), paragraph 7.4.

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04th Mar 2016 11:56

I've already been helpful and provided the correct answer. The OP has chosen to disregard it.

Your notice doesn't help because it is completely irrelevant to the question. Do you have a valid reason why you think a VAT notice with the following description is helpful to a question regarding recovering input VAT on the FRS.

This notice explains how imported goods are treated for VAT purposes.

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04th Mar 2016 13:49

Appreciated

cheekychappy wrote:

I've already been helpful and provided the correct answer. The OP has chosen to disregard it.

Your notice doesn't help because it is completely irrelevant to the question. Do you have a valid reason why you think a VAT notice with the following description is helpful to a question regarding recovering input VAT on the FRS.

This notice explains how imported goods are treated for VAT purposes.

I appreciate your help, however if you'd elaborated a bit more I may have agreed with you.  Your answer came across as more of an opinion than fact.

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04th Mar 2016 12:10

My reference

gives an example of how HMRC may distinguish software between goods & services.

Indeed the taxation article I have linked to makes the same reference for a case not involving imports,

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04th Mar 2016 12:18

Your reference

Wanderer wrote:

gives an example of how HMRC may distinguish software between goods & services.

Indeed the taxation article I have linked to makes the same reference for a case not involving imports,

 

Your reference was irrelevant regardless of the import/non import question because it doesn't describe IRIS, it's software bought on a subscription basis, it is clearly a service.

 

Products containing ‘normalised’ software are mass produced items which are freely available to all customers and usable by them independently after installation and limited training in a standard form to carry out the same applications or functions. 

That is not the basis on which IRIS is bought and operated.

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By codling
04th Mar 2016 12:27

Services

I side with cheekychappy on this one.

If you purchase software from Iris then you are surely purchasing a bespoke package under licence (the package you buy can be tailored to an individual accountancy practice depending on what they need) which I believe is providing services through the provision of a software programme which helps the end user to then provide accountancy services to clients.

Another point is that the Iris software will undoubtedly have a finite life as it is usually an annual licence so would this not mean that it could not qualify anyway as it would be "consumed" within 1 year?

The example pointed to by wanderer relates to a stand alone package which has no limitations on use and does not have a finite life - although you would undoubtedly need to keep upgrading to keep ahead of the game. 

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04th Mar 2016 12:33

All is lost

I find it more than a little disconcerting that anyone who wants to use Iris also wants to treat an annual subscription as a capital purchase, for any purpose.

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04th Mar 2016 13:52

All is lost

martinscutt wrote:

I find it more than a little disconcerting that anyone who wants to use Iris also wants to treat an annual subscription as a capital purchase, for any purpose.

 

Why on earth would you find it 'disconcerting'?  If there was any way we could treat an integral part of our business as an asset, claim the VAT so thus reduce our bill why wouldn't we try?  God help any of your clients who ask questions, if you can get any.

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04th Mar 2016 16:19

Really?

bigmuggsy wrote:

Why on earth would you find it 'disconcerting'?  If there was any way we could treat an integral part of our business as an asset, claim the VAT so thus reduce our bill why wouldn't we try?  God help any of your clients who ask questions, if you can get any.

I assume that since your comment ended in such an insightful 'burn' the question therein was not a serious one.

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04th Mar 2016 12:40

Guys I understand your points

however I'm giving examples of what is actually written by HMRC.

Is it really a distinction as to the life span, way user perceives it it etc? I bought a BIC pen today. It has a finite life, will undoubtedly last less than a year & I won't treat it as an asset in my accounts In a VAT claim however I'd regard that as goods.

 

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04th Mar 2016 12:43

Now I see where you are going wrong.

 

How it is treated for accounting purposes often differs from the VAT and tax treatment.

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04th Mar 2016 12:47

Jeese I know that!

It's other posters who have bought in the accounting treatment. I was responding to their points!

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By codling
04th Mar 2016 12:49

It is a VAT question

I understand what you are saying wanderer, but regard needs to be had to VAT notice 733 and even if it could be shown to be capital it would still fail under 733/15.1 given that Iris is an annual licence. 

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05th Mar 2016 02:40

Thank you!

codling wrote:

I understand what you are saying wanderer, but regard needs to be had to VAT notice 733 and even if it could be shown to be capital it would still fail under 733/15.1 given that Iris is an annual licence. 

Thank you!

Somebody else who actually quotes from the VAT guidance rather than what they think is correct without referring to a reference source.

My points have been, in the main, to illustrate how HMRC regard software as a supply of goods rather than services in particular circumstances.

ONCE that has been established THEN you look to VAT notice 733 to conclude whether it was 'capital expenditure goods' that you can reclaim the VAT on or not.

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04th Mar 2016 13:11

For Vat

The life span of your product is one year, so it is not a capital item and should not be treated as such so the answer to your question is you cannot re-claim the VAT in my opinion under the FRS. 

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04th Mar 2016 13:55

Thanks to those who provided helpful answers - it appears we can't claim the VAT so we won't!

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By codling
07th Mar 2016 08:16

Interpretation

Hi wanderer.

The main problem is that the definition of capital for income tax and corporation tax can differ greatly from that for VAT so whilst some things will be capital for most tax purposes they may not be for VAT purposes and the VAT guidance is actually very poor in the explanation and needs to be seriously updated. 

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