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The key issue in this case was that the company was unaware of the flat rate scheme (FRS) rule that although input tax can be claimed on capital expenditure goods costing £2 000 or more including VAT there is an exception that this does not apply to assets that are leased let or hired out by the business.
The taxpayer’s main activity was to hire out courtesy cars so the input tax restriction applied to 12 new vehicles bought in June 2015. It claimed input tax on the original return but HMRC disallowed the claim and assessed the business to £40 625. At this point the company tried to withdraw retrospectively from the FRS so it could claim the input tax on the vehicles through normal VAT accounting.
The taxpayer produced 228 invoices for the period between 2012 and 2014 with total sales of £1.3m – well above...
