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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Hello, My company is on the VAT Flat Rate Scheme. It made

Resolved Question:

Hello,

My company is on the VAT Flat Rate Scheme. It made a single purchase totally £2100 which included a laptop, laptop stand and iphone, all on the one receipt bought from apple. My accountant advised me at the time such a purchase the VAT can be claimed back which I did so. HMRC have performed an assessment and have decided that only the Laptop and Laptop stand could be considered a package and therefore as the total falls under £2000 I can not claim the VAT and must pay it back. HMRC refer to paragraph 15.3 of notice 733.

I have read the relevant paragraph over and over and it does not indicate the items have to be directly related, only that it has to be bought as a package, i,e on a single receipt. This is evident in their kitchen example. I can see some of their rules as being subjective and perhaps this has not been tested this one, but I am sure I am right and I was also advised at the time by a big accountancy firm who did my VAT return that month.

I can either pay up the £400 or discuss this back with the officer, or contest.

Is HMRC right?
Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.
Hello and welcome to the site. Thank you for your question.

I have read para 15.3 and it would be difficult to prove that iphone is primarily linked to the computer. iphone appears to be a stand alone item in your case albeit bought as a package for maybe cost saving.

I would tend to agree with HMRC but you can challenge their assessment. You will have to demonstrate that the primary function of iphone is working with the computer.

I hope this is helpful and answers your question.
Customer: replied 3 years ago.

Hello,


 


Para 15.2 just states a single purchase and nothing about relationship


Para 15.3 suggests normal VAT for single supply applies (i will have to check this), however, their second example of kitchen supplies, a pizza over, fridge and dishwasher counts. They are completely separate but of course all used for the business. My example is at least equal to this as all are certainly used for the business as well. The dishwasher is not being used to wash items in the kitchen oven, most likely plates. i.e all three items in their example are just for the business.


 


Have I missed a clause or not interpreted 'package' correctly? Please let me know where it states that the iphone's main function would have to be working with the computer to claim?


 


Thankyou

Expert:  taxadvisor.uk replied 3 years ago.
Michael, thank you for your reply.

The kitchen example clearly shows items primarily used in the kitchen.
Although there is nothing in the notice that states iphone's main function woulde be working with the computer, it is implied under normal VAT rules that items of expenditure would be integrated.

In my opinion, it is a weak case prima facie.

I hope this is helpful.
Customer: replied 3 years ago.

OK, understood. As a computer programmer developing iPhone software with those specifics which I told in person to the HMRC inspector at the time of the inspection he actually said it was OK. It was in the follow up assessment that they/he said it was not allowed, so perhaps forgot the nature of my work. Although even then they could argue a phone is always for making phone calls, however, in the case of an iPhone developer there is an exception. However, I am not sure it is worth challenging HMRC and losing more time off work!


 


All that being said if a chef bought a mobile phone in their package along with the other items, as the chef spends all day in the kitchen and you have to assume the phone is only used for business purposes then the phone in the case of the chef would also be used in the kitchen all day. Likewise I use the phone all day in business hours with the laptop. Also is it not the fact that the shop sells both items shows a close relationship, computer store vs a kitchen store both selling related products.


 


If HMRC are right here, then one of the biggest accountancy firms in London are advising their clients incorrectly, so they have also interpreted this wrongly. So one last check are you sure HMRC are in the right here based on their guidelines?


 


Many Thanks

Expert:  taxadvisor.uk replied 3 years ago.
Michael, thank you for your reply.

I could also use the same argument that I need a smartphone when I buy a computer and printer for my business as a practising accountant but I am sure HMRC would laugh at me if I were to include it as a package and claim VAT because the total spend has exceeded £2,000.

I would advise you to go back to HMRC If you have had discussions with HMRC and the Inspector said it was ok at the time of the inspection.

I hope this is helpful
taxadvisor.uk and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

I thought your example would be fine as well!


 


However, if that is not then I understand that mine is not either.


 


I will discuss with the accoutant who advised me, saw the receipt and did the VAT return. It is possible they did not look at the individual items at the time, although, their website only talks about single receipt over £2000 being the criteria and nothing about the relationship of the capital items. However, will accept your answer! Thanks

Expert:  taxadvisor.uk replied 3 years ago.
I thank you for accepting my answer.

Best wishes
Customer: replied 3 years ago.

Hello,


 


Just a follow up question, you said "it is implied under normal VAT rules that items of expenditure would be integrated." What do you mean by this. Why do items need to be integrated?


 


I bring this up again as I spoke with two advisers today who agree with my view, but I want to understand your position further?


 


Thanks

Expert:  taxadvisor.uk replied 3 years ago.

Michael, thank you for your reply.

As I explained in my previous posting, if HMRC Inspector indicated to you that the expenditiure was claimable (iphone would be deemed capital), then you should follow it up with HMRC and appeal against assessment.

In my experience, I would not view purchase of iphone as capital as these things are replaced within two years (on mobile phone contracts). The term integrated is a loose term. The example of items used in a kitchen is a good example of expenditure being integrated.

Other advisors may have other interpretation.

I hope this is helpful.