Aportioning VAT between Private/Business

happywarmgun

As soon as I finally get free from my notice period at work in Jan I am starting my new company and registering for VAT.

In the meantime, so I can hit the ground running I've started to buy stuff for the business.

My understanding is that I'll be able to claim all the VAT back on office stuff and so on that is 100% for business use, but must 'aportion' the use for things that are both business and private.

In practice how do people do this?

A real example: I'm upgrading my various PCs to Windows 7. My main office PC is entirely for business so am comfortable that I can claim that one back completley. My laptop however, I will use both for business and for surfing the internet in the lounge, home video editing, photo editing etc.

How do people calculate the figure for things like this? Do you just pull one out the air? (50%?)

(seperate question - if I stick this windows 7 for some business use on my personal laptop - does the laptop then become an asset of the business or is it still my laptop?!?)

happywarmgun

A quick bump up to the front page to see if anyone on a Tuesday is more likely to answer this then they were on Sunday!

afly

In my experience this is a tricky area.

Best bet is decide based on what you would be happy to explain to the taxman in full if he were standing in front of you. If you can fully justify it, it will usually be fine

ie. dont take the !!!!!

Rolo_Tomasi

Where an item purchased has both business and private use, you can only claim back the VAT on the business portion. There is a more detailed explanation at
http://www.hmrc.gov.uk/vat/managing/reclaiming/private-use.htm

In an ideal world, to avoid any doubt you would run your percentages past the VAT first to ensure that they agree with them but unfortunately it is not possible to do this. You have to make reasonable estimates and if, during a VAT visit, the officer does not agree that your estimates are reasonable then you have to pay back the difference.

You also need to be aware of the rules regarding reclaiming VAT on expenses incurred prior to registering for VAT. The basic rule is that you can reclaim VAT incurred on goods purchased in the 3 years before you register and on services in the 6 months before. There is a link to the rules on the same site as above.

JasonLVC

I wouldn't worry about the scenario you posed too much.

If you get a VAT inspection be honest and say you use the laptop occasionally for personal purposes, and be assured, the Officer is not going to want you to apportion the cost of the software.

It is the same logic with a broadband connection, if you are working from home you are bound to use the internet for surfing for non-business reasons (like MSE!) but HMRC accept that it is impossible to apportion such a thing.

Apportionment is simply a fair and reasonable basis, if you really want to be pedantic, monitor your surfing or laptop use over a two week period and use the ratio of bus/non-bus. Keep the evidence to show HMRC during an inspection to show the basis of your apportionment.

One other thing, you don't HAVE to register for VAT from day one (unless you turnover £68k straight away). If your customers are B2C (the public) you may want to hang off VAT registration as it'll make you 15% dearer than the other guy who isn;t registered for VAT. If your customers are B2B (other traders) then chances are they can reclaim the VAT you charge them so you might as well register when you can.

happywarmgun

Many thanks for the replies.

I'm pretty certain I'll be making sales of over 100k in the first year, so registering is unavoidable.

Like most people my objective is pay what I am due to pay but never to overpay! I think I'll just imagine if I could look a tax man in the eye and explain my logic for the % split with certainty that not a bead of sweat would appear on my forehead then that is probably fair enough....

James_Trimby

YOur comment is spot on if in doubt claim a % far easier to argue later than an absolute. FOR income tax /corporate tax they hae now agreed that if main use is business then okay (even if 95% use private as long as you NEED the 5% for business) VAT rules dont work on the same basis so stick to the %'s but be generous as above comment still has some baring on the calculation. Re the 6 months back for services this is for services not fully utiliesed at the registration point (so moblie phone is out but an advert in yell for a year is in)