Get advice before your transaction costs you money
If you’re in a special VAT scheme and planning a transaction that’s not part of your everyday business activities, take some professional advice first. Otherwise, you may lose out.
Meston Reid was able to help one client who was already part-way through a transaction before he realised his anticipated profit was instead set to turn into a loss.
The client was on the flat-rate VAT scheme, which enables smaller enterprises to simplify their VAT accounting and record keeping.
He spent a significant sum buying goods for re-sale in the belief that he would be able to reclaim the VAT charged on the purchase. However, under the scheme, VAT can only be reclaimed on capital expenditure and not on the substantial cost of sales.
When he realised in April 2018 that there was an issue – and that the scale of the cash figures involved meant he faced making a loss – he turned to Meston Reid & Co for guidance.
Following our review of the transaction, it was established that there was an opportunity to avoid such a scenario.
The client had not yet submitted his March 2018 VAT return, so was able to de-register from the flat rate scheme at the start of that VAT period – he could in effect set a voluntary de-registration date of January 1 2018.
The transaction had been partly completed in late 2017, and hence incurred irrecoverable VAT. Critically, however, he was able to reclaim the input VAT for the first quarter of 2018 when the second phase of the transaction had been finalised.
Although the client had not been able to reclaim all of the input VAT, the amount Meston Reid & Co had helped him to reclaim secured an overall profit.
"If you use a special VAT scheme or are subject to issues such as partial exemption, always check that a transaction outwith the norm doesn’t carry potential issues,” says business services manager Stuart MacPherson.
"In this case we were able to secure a profit for the client but we have seen cases where there simply hasn’t been a remedy.
The best way to avoid a nasty shock is to take specialist advice in advance. It will help you avoid some of the pitfalls of the transaction process and complete the transaction with confidence."