Tech: Claiming VAT for studio purchases?

Subject: Tech: Claiming VAT for studio purchases?
From: GUEST,EllisK
Date: 16 Apr 18 - 08:02 AM

Hi all!

I run a decent size studio in a small town in Oxfordshire. I don't know a whole lot about VAT on items for business use, but I'm planning on a large investment in the instruments recording area of the studio, replacing damaged/older amplifiers and some nice new mics. I would normally send my personal bank the money it would cost and buy it that way, but had someone tell me that will hurt my tax if I'm paying myself more (poked around this tax tool which said I would pay a good few hundred more in tax taking into account purchases on that account!). Doing some research into it apparently I can claim back the VAT (20%?) on purchases if they're for business use. Would I be able to do this for the mics&s I'm buying, and how do I go about doing that if I can?

Thanks in advance!
Ellis

Subject: RE: Tech: Claiming VAT for studio purchases?
From: GUEST,Mark Bluemel
Date: 16 Apr 18 - 09:50 AM

You probably can, but you'd probably be better asking your accountant (you do have one don't you?).
https://www.gov.uk/browse/tax/vat may be a good start...

Subject: RE: Tech: Claiming VAT for studio purchases?
From: GUEST,Rigby
Date: 16 Apr 18 - 10:30 AM

I'm pretty sure you can only claim VAT back if your own business is VAT registered -- are you?

Subject: RE: Tech: Claiming VAT for studio purchases?
From: GUEST
Date: 16 Apr 18 - 12:43 PM

> had someone tell me that will hurt my tax if I'm paying myself more

It's how the funds are used that matters, not whether you move them through your personal account.

Short answer is no - you are not VAT registered, so you cannot claim anything.

If your turnover is likely to hit north of £80k any time soon then you need to learn about this pronto; otherwise, in the immortal words of Corpr'l Jones, don't panic.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Bonzo3legs
Date: 16 Apr 18 - 01:31 PM

If you are running a business, even if your turnover is not expected to hit £80k, it may be worth your while registering for VAT in order to claim VAT charged on equipment purchases, then deregistering.

You will of course have to charge VAT on any sales invoices issued whilst registered. I do recommend you find an accountant who will advise you.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: punkfolkrocker
Date: 16 Apr 18 - 01:37 PM

Bonz - what if you set up business, register for vat, buy as much gear as you an afford [or credit card limit]...
claim the vat refunds..

Then fail to gain any customers or income at all...
Packing in your business, but carrying on with all that gear as an amateur...???

I wish I'd thought of this before buying that Les Paul and Marshall amp...!!!

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Bonzo3legs
Date: 16 Apr 18 - 01:52 PM

Then you would be deemed to have bought the gear from the business at "market value". I'd wager that HMRC would look at this very carefully and could challenge the sales value of the gear - possibly an HMRC Inspection waiting to happen!

Subject: RE: Tech: Claiming VAT for studio purchases?
From: punkfolkrocker
Date: 16 Apr 18 - 01:58 PM

we can dream...

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Bonzo3legs
Date: 16 Apr 18 - 02:01 PM

Yes indeed!

Subject: RE: Tech: Claiming VAT for studio purchases?
From: GUEST,Malcolm Storey
Date: 16 Apr 18 - 02:05 PM

I presume the person who asked the question is running a business and taking income from it.

As indicated above if turnover exceeds the Vat threshold then the business must be registered.

However even if your turnover is below the threshold you can still register. I did this for many years because it simplified getting invoices paid by bigger customers.

It would appear that the purchase of the new equipment is imminent so I would doubt if registration could be obtained in time to benefit.

I also doubt that the Vat people would allow such an obvious sleight of hand.

Under normal circumstances Vat can only be reclaimed by off setting against Vat added to invoices.

Forget about it would be my advice.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: treewind
Date: 16 Apr 18 - 04:33 PM

In theory if your business makes a loss you can end the year claiming back more VAT than you paid.
In practice, that's likely to result in the unwelcome attention of a VAT inspector and that will not be any fun at all, especially if it looks like you aren't really running a business. At best he might cancel your VAT registration and make you pay back what you claimed, and at worst you might get fined or prosecuted for fraud.

If you are running a business, an accountant would usually advise against registering for VAT unless you have to. An exception might be where all your customers are VAT registered too, as they'll want VAT invoices.

Similarly, it is possible to make a loss on a small business, like being a part time gigging folk musician, and get the loss taken off the PAYE income from your day job. I have done this, but only with the aid of an accountant to make sure all the figures were presented properly. It's quite legitimate though would also be questioned if you made a loss every year.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: GUEST,Malcolm Storey
Date: 16 Apr 18 - 06:38 PM

Treewind reinforces my reading of the situation and explains more fully my reason for being Vat registered whilst below the threshold.

I doubt very much an accountant would advise any differently and would probably cost you more than any Vat you might wish to try to reclaim.

Forget it.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: GUEST,.gargoyle
Date: 16 Apr 18 - 07:15 PM

As a Yank...in travels in the UK...

I have found it quite wonderful at exiting to receive a refund.

Sincerly,
Gargoyle

Subject: RE: Tech: Claiming VAT for studio purchases?
From: OldNicKilby
Date: 17 Apr 18 - 10:41 AM

DO NOT UPSET THE VAT MAN. an investigation is akin to a Castration without anaesthetic. Get an Accountant and sleep easy. In the long run they save you money. Concentrate on running your enterprise it is better in the long run. Play it straight and you will do well
If you are over the threshold then you can and should register and so re-claim your inputs. But be careful about the conditions regarding claiming for Domestic space as this could affect your Tax position when you sell your House. Good Luck ,being the Boss is good fun

Subject: RE: Tech: Claiming VAT for studio purchases?
From: GUEST
Date: 17 Apr 18 - 12:18 PM

> If you are running a business, even if your turnover is not expected to hit £80k, it may be worth your while registering for VAT in order to claim VAT charged on equipment purchases, then deregistering.

This is VAT fraud and very much Not Recommended. Don't do this.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Bonzo3legs
Date: 17 Apr 18 - 04:17 PM

If you aren’t liable to be registered because the value of your:
•taxable supplies
•distance sales
•acquisitions

is below the thresholds, you can apply for voluntary registration.

You can also apply to register before you start to make taxable supplies, distance sales or acquisitions.

You may only register if you’re in business. HMRC defines business as a continuing activity carried on with the intention of making supplies for a consideration. Non-business activities can include those carried on as a hobby, or supplies made in a purely private capacity (for example, the sale of personal belongings). The terms business and non-business are explained in greater detail in VAT Notice 700: the VAT guide.

In some cases, we may ask you to show us that you plan to make taxable supplies.

You can apply for voluntary registration to be backdated by up to 4 years from the current date.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Bonzo3legs
Date: 18 Apr 18 - 04:29 AM

I would suggest that folks refer to HMRC VAT notices before giving "man in the pub" opinions which are wrong.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: GUEST,matt milton
Date: 18 Apr 18 - 04:38 AM

Ellis - what's the name of your studio?
Do you record much folk/trad stuff? I ask because I might be interested in doing some recording in the Oxfordshire area sometime.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Nigel Parsons
Date: 18 Apr 18 - 09:16 AM

I'm with Bonzo, check the facts. This should be a starting point:
VAT Notice 700/1: should I be registered for VAT? - GOV.UK
Current threshold for compulsory registration is turnover of £85,000 in a rolling twelve month period.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Bonzo3legs
Date: 20 Apr 18 - 02:58 AM

Funny isn't it that folks who have probably never prepared a VAT return in their lives, consider that using the VAT legislation to save VAT is fraud!!! I prepare on average 10 each month, although I haven't dealt with a VAT Registration for several years.

What should be borne in mind is that invoices in support of claims for refund of VAT must be a proper VAT invoice which at the very least:
1 is addressed to the business
2 shows the VAT registration number of the supplier
3 shows the tax point of the supply (date)

However, a number of HMRC folks carrying out inspections have said that a VAT invoice is not "normally" required in support of VAT claimed on expenditure under £25.

A purchase order is not a VAT invoice and will be rejected by HMRC, and likewise be careful of documentation for internet purchases, which although state an amount of VAT, do not show any VAT number of the supplier and will therefore be rejected by HMRC - always asuming that they choose to carry out an inspection, and that the inspector is awake!!!

Another area that HMRC likes to home in on is supplies to customers outside the EC!!!

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Nigel Parsons
Date: 20 Apr 18 - 04:07 AM

I think Bonzo's comment about what constitutes 'fraud' relates to this post:
From: GUEST
Date: 17 Apr 18 - 12:18 PM
If you are running a business, even if your turnover is not expected to hit £80k, it may be worth your while registering for VAT in order to claim VAT charged on equipment purchases, then deregistering.
This is VAT fraud and very much Not Recommended. Don't do this.

While the above may not be fraud, it will not benefit you, as you will be expected to show, on registration, that you intend to make taxable supplies. And then, on deregistration, you will need to account for VAT on the value of any retained assets, so there is no money to be made that way.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: treewind
Date: 20 Apr 18 - 05:20 AM

"Funny isn't it that folks who have probably never prepared a VAT return in their lives, consider that using the VAT legislation to save VAT is fraud!!!"

I was the first to mention the f-word, and as it happens I have done many VAT returns in the past, when I ran a limited company for doing contract software work (back in the days when that was the best way to do it).

And 'the VAT legislation' makes it clear that you are expected to be (as Nigel says just above) making 'taxable supplies'. OK, maybe the system is watertight enough that the VAT man will get his money back when you deregister, so you'd have to actually file a false return to make any money out of it, and that would qualify as fraud or similar (I'm not a lawyer...).

Returning to EllisK's question in the original post: you can register for VAT and claim the VAT back on your studio equipment purchases, but for ever after that you will have to pay (and therefore charge your customers) VAT on all invoicing for studio work. And you'll have all the hassle of filing quarterly or monthly VAT returns. If you're below the compulsory VAT threshold you simply have to ask yourself whether it's worth it.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Nigel Parsons
Date: 20 Apr 18 - 05:53 AM

Fairly succinct response there (thanks) Treewind.
One more thing to consider for 'voluntary registration' (Registering when trading below the registration threshold)
If most of your 'customers' are VAT registered businesses then they can usually reclaim the VAT you charge them, so becoming VAT registered lets you reclaim VAT on your costs without (effectively) increasing the costs to your customers.
If your customers are non-vat-registered consumers then registering puts your price to your customers up by 20% making you less competitive.
Whether to register voluntarily often then comes down to the status of your customers.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Bonzo3legs
Date: 20 Apr 18 - 03:54 PM

"And then, on deregistration, you will need to account for VAT on the value of any retained assets, so there is no money to be made that way."

A business must pay output tax on any standard rated stock and assets it owns at the time of deregistration. The relevant figure is the market value of the asset, so the calculations take into account wear and tear, obsolescence and damage to the items in question. However, the good news is that a lot of items can be omitted. And output tax is only payable if the total market value of the items that remain is more than £5,000 (i.e. VAT payable exceeds £1,000). Here are the basic rules:
•Stock and assets are excluded if no input tax was claimed when they were purchased e.g. a computer bought from a friend or supplier who was not VAT registered.
•Output tax is declared on the final VAT return on all relevant stock and assets if the £5,000 limit is exceeded.

So, provided that the market value of your equipment does not exceed £5,000, there will be no output tax to pay on deregistration. However should the value be determined at say £5020 - then VAT will be payable on that amount.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: GUEST,Malcolm Storey
Date: 20 Apr 18 - 08:48 PM

So in the end my advice to not bother would seem to hold good.

And no, I am not an accountant, but have been there and done that.

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Bonzo3legs
Date: 21 Apr 18 - 02:51 AM

Recovering some VAT is better than losing all!!!

Subject: RE: Tech: Claiming VAT for studio purchases?
From: Bonzo3legs
Date: 21 Apr 18 - 03:16 AM

Clearly equipment will be very much depreciated in value even after just a few months' use so plenty of scope for achieving a value of £4,999.