Here is a quick question for you. You are thinking of buying new IT equipment, mainly for use at home, but it will also be occasionally used for work. Can you reclaim the VAT on the cost and is there any advantage in doing so?
Buying it through the business
You might have heard one of your mates boosting about putting expenses through business as if there’s a magical tax advantage in doing so. There isn’t. Just because an expense is recorded in the business’s accounts does not mean HMRC will allow a tax deduction for it. In fact, as your bookkeeper and accountant we are obliged to adjust the figures for HMRC to exclude all costs which are not for the business.
You cannot reclaim any VAT for a purchase which is not for your business. For example, if your business paid for your personal car, it cannot reclaim the VAT. However HMRC accepts that even a small amount of business use (as long as it is not for the purpose of making exempt supplies) entitles a business to reclaim VAT. For example, for a purchase of equipment mainly for private use which will also be used for the business, you can claim back VAT by using one of the two methods given below.
Additionally if the purchase is of consumable goods or services e.g. stocks where you can identity the proportion of business use than HMRC will accept any fair or reasonable estimate. But if the goods are equipment where the usage will vary between business and private than there are two ways to account for the VAT.
If when you make a purchase you have a reasonable idea of the proportion of business and private use, you can simply reclaim VAT in proportion to the expected business use, and that’s the end of the matter. However, this method has a potential issue when your private use turns out to be different from your estimate and you are not in a position to amend your claim. This can work in your favour or HMRC’s.
Alternatively, as long as you expect there to be some business use you can reclaim all the VAT on the purchase and then pay some only when you use the equipment for private use. HMRC has a formula for working out the VAT you must pay.
Special rules for some equipment
HMRC’s business brief says that if your business buys IT equipment, such as laptops, tablets, mobile phones, etc. intended for business use, any private use can be ignored and the full amount of VAT reclaimed. This applies if you can show that the equipment is needed for business purposes and this was the reason it was bought.
And remember this ….
If you don’t expect the purchase to be used in your business, you can’t reclaim any VAT, even if later the position changes. However, if you expect even a small proportion of business use you can reclaim a corresponding amount of VAT, or reclaim all of it at the time of purchase and pay VAT for any actual private use.