Purchasing capital expenditure goods and leaving the scheme

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Purchasing capital expenditure goods and leaving the scheme
  • Purchasing capital expenditure goods
  • Leaving the scheme
  • Temporarily exceeding the scheme turnover limit

This guidance note deals with the purchase of capital expenditure goods by businesses using the flat rate scheme and what to do if a business decides that it no longer wishes to / is no longer eligible to remain in the flat rate scheme.

Purchasing capital expenditure goods

Capital expenditure goods are items purchased by the business that are not consumed by the business. Typical items are vehicles, computers, manufacturing machinery and other office furniture or electrical items. Anything that is consumed in respect of these items are not capital goods (ie paper, toner, fuel, etc). The flat rate scheme specifically excludes the following categories and these cannot be treated as capital expenditure goods under the flat rate scheme:

  • goods that are purchased for resale by the business
  • goods that are incorporated into other goods prior to resale by the business
  • goods used to generate business income from being leased, let or hired
  • goods that are consumed or completely used by the business within 12 months of purchase, import or acquisition
  • goods that are included within the scope of the capital goods scheme (see the Introduction to the capital goods scheme guidance note)

It should be noted that if HMRC has specifically excluded the right to deduct VAT on certain goods, the business will not be able to recover any VAT incurred on these goods via the flat rate scheme. See the What is input tax guidance note for more information.

Reclaiming VAT on capital expenditure goods

If a business is using the flat rate scheme it cannot normally recover VAT incurred on any costs associated with the business. However, it is possible for VAT to be recovered on the purchase of

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