Usually if you buy equipment which is used for private as well as business purposes HMRC expects you to scale down the amount of VAT you reclaim. How can you ensure are recovering more VAT on IT equipment and thereby maximising your claim?
The same but different
HMRC has struggled over the years to keep its VAT guidance on mobiles and IT equipment up to date. Changes in technology have meant the functions of smartphones and tablets, such as iPads, have become more or less indistinguishable. You can make calls using a tablet and use your phone to write a business letter. Despite this, for VAT purposes HMRC still has slightly different approaches for each type of device.
Mobiles for directors and employees
There are three possible cost elements to consider: the phone itself, line rental charges and the calls. Typically, these are paid for under a combined monthly payment or one which separates the cost of the phone from the line rental and calls.
Line rental. You can recover all the VAT paid on this element of the cost regardless of whether or not the director or employee uses the phone for non-business purposes. Line rental usually includes a call/text allowance and as long as this isn’t exceeded it won’t affect your right to recover the VAT in full.
Calls. If a separate charge is made for calls and you have a company policy that prohibits non-business use, HMRC will accept all the VAT on this part of the bill can be reclaimed unless there’s clear evidence that the policy is a sham. In practice, HMRC will ignore minor occasional non-business use. However, where you allow personal calls, HMRC expects you to reduce your claim for VAT proportionately. The good news is it doesn’t expect you to keep detailed records. A broad brush approach will do.
Cost of the phone. Where you pay for this in a lump sum or as a monthly charge, HMRC will usually allow you to recover the VAT in full.
Tablets and other IT
Where a director or employee needs a computer etc. to do their job and their company buys equipment for them to use at home, HMRC assumes that any private use will be minimal and so will allow a full reclaim of the VAT paid on the purchase. However, where the equipment isn’t needed for work purposes your company can reclaim the business use proportion. This could be tricky to work out accurately, but again, a generous approach is taken.
Advice. HMRC accepts any method of apportioning the VAT as long as it produces a fair and reasonable result. You can use a percentage based on a representative period of use, say three months.
Mainly private use
Where a director’s or employee’s use of company paid-for IT is mainly private, it must reflect this in its VAT claim. That might make the VAT (on the business use) barely worth reclaiming. However, there’s a neat way around this.
Advice. Make a small charge to your employee for the private use, say £1 per month, plus VAT of course. Because this is a VATable supply, you’re entitled to reclaim all the VAT relating to the cost of making the supply. This means your company will be able to get all the VAT back on the cost of the iPad etc.