I have just made and agreed a claim for pre-registration input tax for a client who has just registered for VAT. For the size of his business, it is a significant figure. What I cannot seem to confirm is whether this "income" is income for tax purposes. Logically, if I reclaim the 20% VAT on my mobile for the last six months, then this reduces the P&L charge (ie it is taxable). Also logically, if I reclaim VAT on an asset of the business, it's cost has reduced - but I have previously claimed annual investment allowance of 100% in a previous year. I have currently credited the total amount of the input tax claimed to P&L, but is it taxable ? I cannot find where it is even though logic tells me it should be.
Thanks as always.
Replies (8)
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eh?
The VAT you have recovered is the recovery of VAT you have paid to suppliers and as such it has no P&L effect.
If you have previously claimed that VAT as an expense (and capital allowances on part of it) then you have over-claimed expenses and capital allowances and you need to correct those over-claims.
So the outcome is that you will be paying tax on the amount of VAT reclaimed (subject to CA adjustment) but you are not paying tax on VAT recovered you will be paying it on expenses over-claimed
Eh, no ...
The VAT you have recovered is the recovery of VAT you have paid to suppliers and as such it has no P&L effect.
If you have previously claimed that VAT as an expense (and capital allowances on part of it) then you have over-claimed expenses and capital allowances and you need to correct those over-claims.
So the outcome is that you will be paying tax on the amount of VAT reclaimed (subject to CA adjustment) but you are not paying tax on VAT recovered you will be paying it on expenses over-claimed
... if you were not registered at the time the expenses would have correctly been gross on the P&L, assuming that P&L is closed and submitted I would show the reclaimed VAT as a credit on the P&L (and as a proceeds on the capital allowances claim. If still open you can credit the VAT to the relevant expenses/assets.
Reduction
See it as a partial refund on his expenditure.
It's not "income" for me.
I would deal with it as OGA. A credit against the relevant expense in the next trading period or Capital Allowances disposal.
If it's significant, I suppose you could always alter the previous year's accounts.
does it really matter ...
... the fact is it is taxable because profit will rise, the rest is semantics!
I would have it as a credit under other income clearly labelled pre-registration VAT recovered as that is easiest. unless you are doping detailed SA on the accounts each month anything else is a waste of everyones time. The only people who may ask are HMRC, just give them the back-up schedule if they do.
How did you treat this in the end (if you can remember?!) I have the same issue now.
Thank you!