Can I reclaim VAT on CapEx on the Flat Rate Scheme (VFRS)?

Can I reclaim VAT on CapEx on the Flat Rate Scheme (VFRS)?

Client asks:

I run a medical aesthetics company. I am registered for VAT on the flat rate scheme. Can I claim back the VAT on Capital Expenditure?

Acumenica answers:

If you are registered under the VAT Flat Rate Scheme (VFRS) you generally cannot claim back VAT on any costs as this is already factored in to the flat rate you are charged. However, you are normally also able to reclaim VAT on Capital Expenditure on single purchases above £2,000. There are a number of rules you need to follow though:

  • It must be a single capital purchase of £2,000 or more. It doesn’t need to be one item but it does need to be a single invoice. There can be three capital items on it but as long as the total exceeds £2,000 then the VAT can be reclaimed.
  • Software is not classed as Capital Expenditure for these purposes.
  • Building materials are not Capital Expenditure either.
  • If you plan to rent out or sell the item, you cannot reclaim the VAT. 
  • There’s no requirement to adjust for private use

Provided you allocate the invoice to a qualifying Fixed Asset code in your accounting software, the VAT element will be automatically entered in box 4 of your VAT return and deducted from the amount payable. In FreeAgent and Xero this is a simple process but your accountant will be able to advise if you have any difficulties. We can’t advise on any other accounting software packages.