Andrew Needham looks at how businesses in the VAT flat rate scheme should account for capital purchases.
When a business joins the flat rate scheme (FRS) for small businesses, it need only account for the relevant flat rate percentage applicable to its trade category on its sales; however, it cannot recover VAT on its purchases.
Capital purchases
The one exception to this is when a business purchases a capital asset. Normally, capital purchases cover goods which are bought to be used in the business but are not used up by it (e.g., a van, a computer, or a production machine).
A business on the FRS can reclaim the VAT on a single purchase of capital goods where the VAT inclusive amount is £2,000 or more.
Specifically excluded from being a capital purchase are any goods bought to:
- resell;
- incorporate
