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Vat & issues

  • 167 posts
  • # 71939

Hi

Recently looked at a question on VAT and answered it one way nd then looked at the question more thoroughly and decided to change my answer. Unfortunately my new answer was incorrect and i should have kept to the original.

The issue involved the amount to capitalise a motor vehicle - i had correctly taken the road fund part of the cost out of the total, i then thought about the advertising on the side of the vehicle - i initially thought that this would be part of the cost of the vehicle, i then had second thoughts and took it out on the basis that it was advertising.

Also any advice on vat and the writing off of bad debts - cannot see the logic of still being able to reclaim vat when a debt is written off

Any thoughts/comments much appreciated

Kind Regards

Martin

  • Member
  • 495 posts
  • # 71940

The advertising on the side of the van - and any adjustment to the interior such as fitting bespke shelves - all counts as capital expenditure. 

It's a bit like when a company buys a machine - the installation costs are capital expenditure but ongoing maintenence is a general expense of business.

I had it explained as is the cost a 'one-off' - probably capital, a repair - expense of business, other form of expense which will be repeated - insurance, tax that sort of thing - all of which are expense of business.

So printing fliers and paying for short term (less than one accounting period) ads is expense of business but the placement of the company logo on a newly aquired vehicle is capital.

Bad debt - humm... when you sent out the order to the customer your invoice will have shown VAT, it went on your books and became part of your VAT calculation for the accounting period. Now you know that the customer won't be paying so you are owed for the goods and the VAT. The VAT was only owed for a sucessful sale - this was not successful so you claim the VAT back.

Sorry a bit waffly 'cause it is early and I haven't had my coffee yet Smile  but I hope some of that makes sense

Theresa 

  • 273 posts
  • # 71947

Hi Martin and Theresa

In a real life situ, be careful with the sign writing capitalisation.

For instance I have a sole trader client who, although he purchases a new van, the sign writing is not done on the same day and he has it redone once a year, therefore it is an expense and not part of the van for cap allow.


The reclaiming of vat on bad debt is because when you invoice a customer you include VAT.  The VAT is then paid to the HMRC as part of the quarter's vat due on sales.  This is regardless of whether the customer pays or not.  (different for cash VAT accounting).  So you have paid out to the HMRC but have not received the money from the customer, therefore as the debt becomes bad debt you can reclaim (after 6 months).  Unfair if you are paying out to HMRC and not receiveing money for it if you see what I mean.

  • 180 posts
  • # 71951

Remember also that to claim VAT Bad Debt Relief the debt must be physically written off in your books and not just included as a provision for bad debts figure.

As to the six months - I dont see that as an issue, from a business point of view why would you want to write off a debt earlier? Six months is a good period to exhaust all debt recovery routes.

In my case I have only written of £700 in twelve years  - £58 per year average and down to having very tight T&C.

It may be that HMRC have this so that statictically the figures are more representative over that period.

  • 167 posts
  • # 71953

thank you for your replies

Regards

Martin

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