How do I deal with reselling this capital item under FR scheme?

Question asked by Pete 6 years ago

This seems like a bit of a messy situation, I hope one of you very helpful accountants can help (mine is way right now)

About five years ago my (music production) company bought a musical instrument (as part of equipment, not for resale). The instrument was bought from a US seller on eBay and shipped from the US.

I am on flat rate scheme but price was >£2000 so the VAT charged on it by customs on import was entered into box 4 to be reclaimed.

There was subsequently a VAT audit, and HMRC disallowed this reclaim of VAT and made me pay it back, on the grounds that the VAT & duty invoice (from Customs) was made out to me personally not made out to the company. Reason being the seller had not entered the company name on the package details.

This seems unfair as the payment for the item was made from my company account, but there you go.

Now I want to sell the item (for £2500)

So is this correct:

I have to charge 20% VAT to my customer as normal (it will be sold to a non-VAT registered individual so I cannot be competitive with non registered sellers). This will be declared as part of my turnover box 6 (Of which I pay £16.5% to HMRC)

So this now seems even more unfair to me, (but who said tax was fair?) Is this correct and just part of the downside to FR scheme? Seems like I'm paying them VAT twice even though on purchase it seemed to be an error based on a technicality.

Thanks

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4 Replies

Hi Pete

Although now water under the bridge I would have challenged HMRC's assertion that you could not reclaim the VAT. As happens with many purchases and director expense claims the purchases are made by you as agent for the company and so, whilst your name may appear on a bill you are buying on behalf of the company and so should have been able to claim the VAT.

But, yes, it's a sale by the company and so VAT is chargeable and payable as you set out.

Out of interest, had you been able to reclaim the VAT you would almost certainly have had to declare and pay 20% VAT on sale on the VAT return, but I'm not sure if CB could handle that.

Best answer
6 years ago

Although now water under the bridge I would have challenged HMRC's assertion that you could not reclaim the VAT.

maybe I'll revisit that, it does seem wrong.

Out of interest, had you been able to reclaim the VAT you would almost certainly have had to declare and pay 20% VAT on sale on the VAT return, but I'm >not sure if CB could handle that.

I don't understand, surely if I'd claimed back the VAT (which I have done since then e.g. on a computer purchased by the company,) then I would just raise a normal VAT 20% invoice in CB when I sell it. (The sale amount would be declared and I pay HMRC the normal 16.5% FR, as calculated by CB VAT report.

No?

6 years ago

No - here you go, have a look at section 15.9:

Got it!

OK, you are right I can't see how Clearbooks would deal with that. I can't even see how HMRC would deal with that apart from me manually doing the sums and changing the box 1 amount I enter (which otherwise clear books by default shows as 16.5% of box 6)

6 years ago

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