Reclaiming VAT on Contractor payments

VAT reclaim on contractors working on development of intangible assets

Didn't find your answer?

Apparently, we can't reclaim VAT on contractors working on our I.T projects until the point when the project meets the criteria for capitalisation, and from then on we *can* reclaim the VAT.  

Does anybody have any experience of this, or basically know if it is true or false? It's a public sector organisation - not sure if that makes any difference. 

Regards

Replies (7)

Please login or register to join the discussion.

avatar
By WhichTyler
21st Dec 2019 13:41

1. If you are getting that advice from your professional advisors, discuss it with them, they know your business better than we do
2. Public sector may well make a difference; there are various s33 treatments that may or may not apply. (see vat notice 749)
3. A stab in the dark for what its worth: you can usually only recover VAT on assets that will produce taxable income. You can only recognise assets when there is a measurable future economic benefit. Perhaps if you haven't demonstrated the second, the first applies...

But ask your accountants

Thanks (1)
Replying to WhichTyler:
avatar
By Bamboozle
21st Dec 2019 14:47

Thanks for that. I'm fine with the accounting treatment. Just that the tax treatment and accounting treatment don't always gel.

The bit that's confusing me is basically:

* we hire a contractor to do (anything)
* If said contractor is working on a project that meets the criteria for capitalisation, we can reclaim VAT.
* If not, then we can't reclaim VAT.

I know VAT is a minefield, but I'm just thinking that either you can or can't reclaim VAT in relation to using contractors regardless of what it is they're working on.

Thanks (0)
Replying to Bamboozle:
avatar
By WhichTyler
21st Dec 2019 17:43

Bamboozle wrote:

I know VAT is a minefield, but I'm just thinking that either you can or can't reclaim VAT in relation to using contractors regardless of what it is they're working on.

Not sure I follow you, but whether your contractor is building a website, a database, a bridge or a hospital, the VAT recovery will depend on what the asset is finally going to be used for (also taking into account capital goods scheme and s33 as mentioned above)

Thanks (1)
RLI
By lionofludesch
21st Dec 2019 13:44

Says who ?

And what's their rationale ?

Thanks (0)
Replying to lionofludesch:
avatar
By Bamboozle
21st Dec 2019 14:29

Says somebody I work along aside yet they don't want to give the detail of how, as if it's some specialist knowledge that they have on the subject and don't want to share it.

I'm not sure that they're right, and I don't want to see us claiming back VAT that we shouldn't be.

Thanks (0)
avatar
By spidersong
23rd Dec 2019 09:46

What type of Public Sector organisation:
Local Authorities and similar, who will claim either under normal VAT rules where making taxable supplies or under S33 where making non-business supplies?
For them Capitalisation makes no difference, as long as they're not incurring VAT in order to make Exempt supplies they're fine to recover at any point.

Government Departments and similar (NHS, executive departments etc.)? They claim under S41 and can only recover against a list of 70 odd "contracted out services". These include bespoke computer systems and similar things, but the rules don't allow for a general recovery of VAT, so it may be that the view is being taken that until it reaches capitalisation thresholds they're working on non-recoverable research but once advanced enough it falls under Heading 14 or one of the others.

The 76 headings can be found here: https://www.gov.uk/hmrc-internal-manuals/vat-government-and-public-bodie...

Thanks (0)
Replying to spidersong:
avatar
By spidersong
23rd Dec 2019 09:49

BTW HM Gov are currently consulting/researching the impact of moving S41 bodies into S33 to allow more general recovery and allow the public sector to work together whilst accounting 'on the same page'. So if you hold your breath long enough you may find a different situation arising in the next couple of years.

Thanks (0)