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Determining the correct treatment of VAT paid on a rent deposit and a van.
My client is deregistering from VAT after being registered for two years. He owns a van that is worth £2 000 and he claimed input tax when he bought it. However my query relates to a rent deposit he paid to his landlord when he started trading for £10 000 plus VAT which was incurred one year before he registered.
Because I entered the payment in the balance sheet as a debtor (because it will be repaid to my client at the end of his five-year lease) I treated the VAT as an “asset” under the four-year rule for goods (in relation to pre-registration input tax) and claimed input tax of £2 000 on the client’s first VAT return. But was this correct?
A colleague thinks that the landlord’s VAT charge was incorrect because it is a refundable deposit rather than being relevant to a supply of...
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