Hello,
This is probably an easy bookkeeping question but it is confusing me.
Company is partially exempt from VAT.
Purchase asset for 100k plus 20k VAT
Recovery % of VAT is 25%
Purchase invoice allocated to FA 100k and purchase Tax Control 20k
Qly irrec VAT calc (which includes above) shows 30k irrecoverable.
Entry required?
Dr Irrec VAT 30k Cr Vat Payable 30k
Dr FA Account £15000 Cr Irrec VAT £15000 (Being non recoverable vat on purchase)
This however means that my Irrec VAT account does not match my qly and so annual calculations - does this matter?
I apologise if this is a simplistic question but the more I think about it the more confused I am becoming!
Any insight gratefully received
Thanks
Replies (5)
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No it doesn't matter. But I wouldn't be capitalising the irrecoverable VAT relating to the fixed asset purchase.
FRSSE effective from June 2002
I haven't researched this thoroughly but FRSSE effective from June 2002, para 9.14 says
Turnover shown in the profit and loss account should
exclude VAT on taxable outputs. Irrecoverable VAT
allocable to fixed assets and to other items disclosed
separately in the financial statements should be
included in their cost where practicable and material.
https://www.frc.org.uk/FRC-Documents/ASB/FRSSE-%28effective-June-2002%29.aspx
Irrecoverable VAT on fixed assets
I see it as standard practice to capitalise irrecoverable VAT that is specifically related to fixed assets, here are two examples:
A fully taxable trader (ie. normally recovers all business input VAT) buys a car for £ 24,000 inclusive of VAT of £ 4,000. The VAT is non-recoverable per VAT rules for cars so the balance sheet cost for the car includes the £ 4,000 VAT - £ 24,000 is capitalisedA Golf Club has a 25% VAT recovery for non-inattributable VAT, the Club buys a computer system for £ 1,200 incl VAT of £ 200. Only £ 50 of the VAT is recoverable (25% x £ 200) so it capitalises £ 1,150 (being £ 1,200 total cost less £ 50 recoverable VAT or put another way, £ 1,000 plus £ 150 non-recoverable VAT).
The problem that arises with Golf Club example is that in the particular quarter the recoverable VAT amount may well differ from that determined by the subsequent annual partial exemption adjustment so if the recoverable VAT is say 20% in one VAT quarter and then say 25% at the y/e PX adjustment tjhis leaves 5% of the VAT to be adjusted.
FRS102
states that non-refundable purchase taxes are part of the cost of an asset so I would capitalise it. (FRS15 before it is similar and the FRSSE as mentioned above - para 9.15 in the latest version).
The question
The OP's question was not whether he should capitalise the irrecoverable VAT relating to the fixed asset purchase - he pre-supposed that it was right to do so. The question was whether it mattered that the amount of irrecoverable VAT written off in the P&L account was different from the irrecoverable amount computed in the quarterly and annual partial exemption calculations.
I answered the question in the first four words of the first response, but threw in a remark that I would not have capitalised any of the VAT anyway. On reflection I accept however that the FRSSE and FRS 102 say that in most cases one should.
But the answer to the OP's question remains the same.