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A company has purchased servers in January 2014 for their offices and has capitalized it. Due to a certain problem with the supplier, the company received the invoice in November 2014 although the invoice was date January 2014. The local tax authorities do not allow VAT on Purchases to be claimed after 6 months of the invoice date.
The entry they passed was:
Dr. Computers and Equipment 1000 $
Dr. VAT on purchases 180 $
Cr. Supplier 1180 $Since IAS 16 says to include non-refundable taxes as part of the cost of capitalzation, is it allowed to pass the journal entry:
Cr. VAT on purchases 180$
Dr. Computers and Equipment 180$If tax authorities allow a 100% capital allowance in the first year, would such an allowance be based on the 1000 USD or the 1180$
The simple resolution to this problem is to return the invoice to the supplier and demand a correctly dated replacement
It’s also inconceivable that any tax authority will disallow an invoice for vat purposes (still, return the invoice and get a correctly dated one)
Get the supplier to repay to you the $180 Vat (still get the supplier to replace the invoice with a correctly dated one)
If all that fails and you’re now looking at accounting entries, yes, capitalise the Vat as a non-recoverable tax and then claim your capital allowances.
If the local government is so intransigent as to not allow vat on an incorrectly dated invoice, then they’re not going to be happy giving capital allowances on Vat. So, again! Get the supplier to replace the invoice with one that bears the correct date
What’s the problem? If supplier doesn’t agree to replace, take the story to the tax man and explain what’s happened
Problem is these 2 companies are related parties. They are sister companies. Same management.
Then they must be stupid! Unless there is some hidden agenda!
The selling company will have to pay over to the taxman 100% of the vat as output tax
The buying company cannot claim the vat as input tax. The best that they apparently can hope for is to include the vat as an addition to the value of the asset and then claim capital allowances
What is leaving me in TOTAL confusion is “If these two companies have the same management, what’s the problem with issuing a credit note to cancel the incorrectly dated invoice and issuing a replacement invoice with the correct date?”
In fact, the more I write about this, the more suspicious I am that there is some sort of scam happening here.
My confusion arises because I cannot for the life of me work out what scam it might be
Are you personally involved with either of these companies? If so I would, if I were you, seriously consider my situation
There isn’t any fraud, the companies are very huge and one just forgot to issue the invoice to the other Company. They are 2 companies on different floors.
Hi Mike. If a RENT-A-CAR company bought a car for 10,000$ for the purpose of renting it out to other companies/people, and the tax authorities have given 100% capital allowance for the first year and the car only managed to generate 2000$ for the total of its life (2 years)) and it broke down immediately afterwards, will tax authorities normally rescind the capital allowance given.
Whats the policy in the UK?
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