# VAT question for new contractor



## redape (15 Nov 2007)

Hello, I set up a new Ltd company in mid September for working thru as an IT contractor. From initial reading it looks like I can include mobile phone and internet costs as expenses... is that right?

Also, on my first VAT return can I reclaim the VAT on the purchase of the phone, broadband modem and internet costs even though they were just before the company set up and VAT registration and aren't in the company name?!

Any help most appreciated.

Cheers.


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## Joe1234 (15 Nov 2007)

redape said:


> Also, on my first VAT return can I reclaim the VAT on the purchase of the phone, broadband modem and internet costs even though they were just before the company set up and VAT registration and aren't in the company name?!
> 
> Any help most appreciated.
> 
> Cheers.



No.  You can only claim VAT on any necessary business expenses that are invoiced to the company, i.e. in the company name, and are dated after the date that the company is registered for VAT.


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## redape (15 Nov 2007)

Thanks Joe.


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## sinbadsailor (19 Nov 2007)

You could transfer the equipment into the company and take it that way?


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## ubiquitous (19 Nov 2007)

sinbadsailor said:


> You could transfer the equipment into the company and take it that way?



How exactly? 

This doesn't sound right to me.


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## Graham_07 (19 Nov 2007)

sinbadsailor said:


> You could transfer the equipment into the company and take it that way?


 
From a VAT point the individual cannot pass on an input credit to the company unless the individual was VAT registered also at the time the expenses were incurred, e.g. a sole trader converting to a company. Otherwise this does not work.


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## sinbadsailor (19 Nov 2007)

Say you have a PC that you bought privately before you were incorporated and then, knowing that you were going to use it for work in the company, you transfer ownership over tho the company as an asset and the company company can re-imburse you that way. Is that incorrect? One of my contractor friends was advised of that, for his IT equip. I just bought new gear once incorporated so it didn't apply to me


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## ubiquitous (19 Nov 2007)

sinbadsailor said:


> Say you have a PC that you bought privately before you were incorporated and then, knowing that you were going to use it for work in the company, you transfer ownership over tho the company as an asset and the company company can re-imburse you that way. Is that incorrect?



No, but it certainly wouldn't be correct for the company then to claim the VAT that was originally incurred by the previous owner - as Graham has explained above.


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## Shano79 (7 Jan 2008)

The above answers are wrong.  You may reclaim VAT from dates before you were registered so long as you had the intention at that point to make whats known as 'taxable supplies'.  i.e. in lay mans terms once you incurrred the costs knowing that they would be used for your future business purposes.  

Just ask the suppliers to reissue the invoices in the name of the company and business and submit them with your VAT current return in the normal manner.

I am a tax consultant and just wanted to clarify the above point.


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## Shano79 (7 Jan 2008)

The above answers are wrong. You may reclaim VAT from dates before you were registered so long as you had the intention at that point to make whats known as 'taxable supplies'. i.e. in lay mans terms once you incurrred the costs knowing that they would be used for your future business purposes. 

Just ask the suppliers to reissue the invoices in the name of the company and business and submit them with your current VAT  return in the normal manner.

I am a tax consultant and just wanted to clarify the above point.


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## ubiquitous (7 Jan 2008)

But in this case the business is being run by a limited company that did not even exist when the expenditure was made. The individual who spent the money is not carrying on this business.


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## Joe1234 (7 Jan 2008)

Shano79 said:


> The above answers are wrong. You may reclaim VAT from dates before you were registered so long as you had the intention at that point to make whats known as 'taxable supplies'. i.e. in lay mans terms once you incurrred the costs knowing that they would be used for your future business purposes.
> 
> Just ask the suppliers to reissue the invoices in the name of the company and business and submit them with your current VAT  return in the normal manner.
> 
> I am a tax consultant and just wanted to clarify the above point.



Can you back up the above with details from the relevant provisions in the VAT acts?


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## ButtermilkJa (6 Feb 2008)

Graham_07 said:


> From a VAT point the individual cannot pass on an input credit to the company unless the individual was VAT registered also at the time the expenses were incurred, e.g. a sole trader converting to a company. Otherwise this does not work.


So is it possible then for a sole trader, converting to Ltd Co., to 'sell' any equipment to the new company? I purchased appx €5,000 worth of hardware/software for my business as a sole trader in 2006 but then switched to Ltd Co. last September. Should my new company have paid me for that equipment it now uses?

I was VAT registered at the time and claimed the VAT on all the purchases.


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## Graham_07 (7 Feb 2008)

ButtermilkJa said:


> So is it possible then for a sole trader, converting to Ltd Co., to 'sell' any equipment to the new company? I purchased appx €5,000 worth of hardware/software for my business as a sole trader in 2006 but then switched to Ltd Co. last September. Should my new company have paid me for that equipment it now uses?
> 
> I was VAT registered at the time and claimed the VAT on all the purchases.


 
Sole traders do convert to ltd companies. Often this involves the company, continuing to use equipment purchased originally by the sole trader. The sole trader would have a VAT input credit on the equipment and a capital allowance (12.5% pa ). In the situation as you describe the following could have been the case :-

Sole trader :-
Purchase for say €5,000 + VAT
VAT claim €1,050 @ 21% 
Capital Allowances for say 1 year €625 set against sole trader profits
Ceases after 1 year on setting up company
Sells equipment for say €4,375 + VAT to company ( the cost less the year's wear & tear assuming this realistically reflects the value after one year's use) and pays the VAT to Revenue. Thus ending up with a net VAT claim on the actual use value of the equipment for the 12 months. ( €5,000 - €4,375 )

Company :-
Company purchases at the €4,375 + VAT
Company gets VAT input credit of €918.75
Company gets capital allowances of €547pa ( on €4,375 @ 12.5% pa )

The company could pay either immediately or by way of director's loan to the company which would be paid as soon as the company could afford to. ( no tax implications on directors loan TO the company ) 

One important thing is if a sole trader claims VAT on an item and uses it for a short period then it becomes used by the either personally or in another capacity then a self-supply is deemed to occur and some of the VAT or tax claim may be repayable to Revenue. An e.g. here is one buys a PC for €1,000+VAT as a sole trader, claims all the VAT €210. Then after one month, ceases sole trader & uses PC then Revenue would be entitled to the bulk of the VAT back as it was not wholly & exclusively used in the business.


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## ButtermilkJa (7 Feb 2008)

Thanks Graham, very helpful answer. That pretty much sums up my position exactly. I have full VAT receipts for all the equipment and claimed only capital allowances for the first period so it's just a case of finding out the current value and having my company purchasing it that way. There would not have been any window for personal use as I went straight from sole trader to Ltd. Co in one jump.

Just one quick question. As I am no longer a sole trader, how would I process the VAT repayment to Revenue?

Interesting about the directors loan to company! I might just leave the cash in there until cash-flow improves. Not a bad idea.


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## Graham_07 (7 Feb 2008)

ButtermilkJa said:


> Just one quick question. As I am no longer a sole trader, how would I process the VAT repayment to Revenue?


 
One should normally file a supplementary VAT return for the period in which the disposal occurred. However if your sole trader VAT registration is now presumably cancelled, I'm not sure if that is possible. If the Collector General can send out a supplementary VAT form for that period then you should be ok. Or  if you were filing on ROS, see if the online filing system will permit you to file a supplementary there.


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