Essentially, VAT can only be recovered on capital assets with a VAT-inclusive price of £2,000 or more.
However, you do not need to spend that on one single capital asset. If for example, you purchased a number of pieces of equipment at the same time from the same supplier, and the total price was over £2,000 including VAT, then you could require the VAT charged to you.
But there are other restrictions as follows:
- It must be a purchase of goods; and not services
- Leased/ hired assets are deemed to be a supply of services; therefore, if you hired a van, you could not recover the VAT on the rental payments
- In contrast, if you say purchased a van under a Hire Purchase agreement, then this is deemed to be a supply of capital goods and any VAT could then be recovered
- You cannot recover the VAT on capital goods that you intend to resell- whether you are selling them on their own or incorporated into other goods to supply to someone else
- You cannot recover the VAT on capital goods that you intend to let, lease or hire out- for example, a bouncy castle
- Buildings materials and building work are not capital goods- even if you buy them for someone else to actually undertake the work with
This list is not fully exhaustive, but highlights the most common requirements that might apply.
I would encourage you to speak with a professional such as your local TaxAssist Accountant if you are considering buying any capital items and would like clarification on the likelihood of recoverability of the VAT.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.