Hi, we're a new business and bought assets worth over £100k on finance, we paid the Vat upfront to the finance company. One of the assets was a pile of crap, it shouldn't have been sold to us (confirmed by 2 independant engineer). The finance company and the supplier have agreed to take the old 1 away and give us a new 1 without any penanlties and we get a massive discount on the new one, we've agreed as we're getting a really good deal, we don't get any money back on the old one. We have to pay the Vat again on the new asset as it's a new agreement, we had a HMRC inspctor come down to check the business out as we claim a large amount back on our first vat return, he was happy with everything and sign of the vat return as he checked the receipts, finance agreement, bank statements.
I want to know:
1, as I'm claiming a large amount again, will it go onto investigation again? £24k+
2, will HMRC contact the supplier/finance company? or will they just want to see our bank statements again? The money was transferred from our business account to the finance company's account.
Ok, the company that sold you the goods will have deducted the VAT from their return and that should have been returned to you either directly or as part of the discount in which case you need to ensure that your VAT return reflects that VAT refund.
You have then taken on a new VAT liability for the replacement product. Now you have the choice that instead of refunding HMRC the money you can eliminate the repayment as part of the new transaction.
The bit that's a bit cheeky here is the confussion caused by the VAT being paid in cash up front but refunded by a reduction in the price of the replacement asset meaning that you take the cashflow hit even though the figures should come out the same in that you do not have to repay HMRC because the money went out again.
The finance company is stuck between a rock and a hard place as you've negotiated the reduction rather than a refund to them.
All a bit messy where yourselves and the finance company are the one's disadvantaged from a cashflow perspective even from a balance sheet perspective everything should be ok.
The key to all this is that part of the discount that you have receieved is the refund of the VAT for the faulty goods and that needs to be taken into account when calculating the current periods VAT liability.
Basically you will end up paying the finance company the VAT again but will not be able to reclaim the full amount of the new VAT payment as the previous VAT has been returned to you if my a somewhat convoluted route.
Therefore, the discounted price that you have got is not all discount but rather you need to take the VAT out of that refund.
There is a lot of money involved here so you really need to involve your accountant in sorting this out. They will have a lot better grasp on the facts and figures peculiar to this case.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks for the reply but its not that straight forward. That's why I asked if the HMRC can contact the company direct themselves. I'm not getting a refund on anything from the 1st machine. They're 'doing us a favour' by cancelling the agreement and taking it back. Any money paid towards that machine accounts for nothing but they did tell me that, I think thats why I'm getting a really good discount on the new machine, money I've paid towards the old one kind of goes to the new one.
Will the VAT inspector speak to the finance/supply company? It's a lot more easier of they explain it. I've got a vat invoice for the last amount we paid and this one aswell, plus all transactions were done via bank transfer.
Will it go into investigation again do you think????
I forgot to mention, we were made aware that we wouldn't get any money back as the machine was out of warranty and we had the choice of either paying for 1/2 the repairs, which was around £8.5k, take the company to court and pay court charges, solicitor fees ect and the solicitor did say it's going to be hard proving that the machine wasn't fully refubished and some of the damage wasn't done after we bought the machine or we accepted their new deal. New machine with free installation & delivery, engineer on site for a week, no charges, no deposit to pay on the new machine & a nice discount or we closed down.
we went for the new machine.
The suppliers taking the old machine out, this is speculation but i think the machine is going back to the supplier & they have to pay the finance company back, not sure but we don't get a refund. It seemed the obvious choice and any money we've paid towards the machine, isn't lost as any amount paid already paid towards the old machine kind of accounts for the free install/delivery & discount we're getting.
