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Specific Q for UK composers who operate as a ltd company (regarding purchase classifications...)

Discussion in 'Working in the Industry' started by chrisr, Feb 13, 2018.

  1. chrisr

    chrisr Senior Member

    Sep 6, 2007
    Catchy title eh?

    Wonder if anyone can advise...

    I write all of my music under the auspices of a limited company that I co-own/direct with my wife.

    We're on the flat-rate vat scheme, and have an accountant who does our accounts (who is also looking into this... I think we may be their only music-type client though as we seem to test them on a few different things).

    The rate at which one returns VAT per quarter under that scheme in the uk is linked to your purchases in that quarter, with some types of purchase qualifying and some purchases exempt - "relevant" or "not relevant" goods.

    I've put a list below of what HMRC considers relevant and not relevant in this regard.

    I'm guessing all / any loop CDs, Kontakt libraries, DAW software, etc... should be counted as 'not relevant' - is that how you guys qualify them too?

    My preference would be that everything I buy is "relevant" because then I'd pay less VAT as a result - but unfortunately I think all of my library/software purchases are classed as "non relevant" in this regard. Do you agree?

    There's an interesting threshold whereby one might ultimately be several hundred pounds or more better off, simply by, for example, buying a boxed version of a software app versus a d/l version.(??)

    thanks for any advice - not urgent - but thought it would be worth gauging what others out there are doing :)


    Examples of relevant goods
    This isn’t an exhaustive list:

    • stationery and other office supplies to be used exclusively for the business
    • gas and electricity used exclusively for your business
    • fuel for a taxi owned by a taxi firm
    • stock for a shop
    • cleaning products to be used exclusively for the business
    • hair products to use to provide hairdressing services
    • standard software, provided on a disk
    • food to be used in meals for customers
    • goods provided by a subcontractor and itemised separately
    • goods brought into the UK if they are not otherwise excluded
    • goods bought without VAT being charged, if they are not otherwise excluded
    Examples of supplies that aren’t relevant goods
    This isn’t an exhaustive list:

    • accountancy fees, these are services
    • advertising costs, these are services
    • an item leased/hired to your business, this counts as services, as ownership will never transfer to your business
    • goods not used exclusively for the purposes of your business, for example electricity to supply a home and an office located in the home
    • food and drink for you or your staff, these are excluded goods
    • fuel for a car this is excluded unless operating in the transport sector using your own, or a leased vehicle
    • electronic devices, such as a laptop or mobile phone for use by the business, this is excluded as it is capital expenditure.
    • anything provided electronically, for example a downloaded magazine, these are services
    • rent, this is a service
    • software you download, this is a service
    • software designed specifically for you (bespoke software), this is a service even if it is not supplied electronically
    • goods which are bought solely to meet the test, as these would not be used exclusively for the purposes of your business. For example, if the quantity of goods being bought can’t reasonably be used by the business and are simply ‘stockpiled’ or thrown away, even if the business may normally use those items is smaller quantities such as office materials
    • stamps and other postage costs, these are payments for services
  2. Daryl

    Daryl Senior Member

    Mar 25, 2006
    Classification in this manner only applies because you're on the flat rate. It would be worth doing a side by side comparison with the "normal" method of VAT accounting to see whether or not you'd be better off in the long run getting off flat rate.

    Sorry I should also have said that the things that are "relevant" are only those of a Capital nature. In other words, tangible things that have value. You could make the argument for software that can be sold, however this could also have an effect on your tax bill, as Capital costs are not 100% claimable in a year.
  3. OP

    chrisr Senior Member

    Sep 6, 2007
    Thanks Daryl, you're confirming our thoughts this end.

    I'll take another look at the flat rate vs normal too - although I'm fairly certain that even after the recent flat-rate changes we're still at a point where the flat rate is (just about) better, although it's not a great difference.

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