Loan Repayments and VAT - Sage50

[SERC1204]

Good morning

We (company) currently have an outstanding loan for capital equipment, being repaid in instalments and each instalment includes interest and capital repaid.The equipment in question was purchased on invoice and VAT was accounted for at that time, the finance/loan advanced direct to the company. I've reviewed "VAT Notice 701/49: finance" but it's from the point of view of providing finance.

The previous accountant had coded the capital repayments as T2 (exempt) in Sage and the interest paid as T9 (outside the scope). My take on things is that it should be the other way around: T9 for repayment, T2 for interest. Which is correct?

TYIA

 

[spidersong]

I'd go with you. The repayment of Capital is not the provider receiving consideration for a supply they made it's them being returned their property and is therefore outside of the scope of VAT. The interest is the consideration for the use of their property, but as a financial transactions is covered by the exemption schedule in the VAT Act.

It's like hiring a car the hire company don't account for VAT on the value of the vehicle when it's returned to them but just on the actual rental charge.

 

[SERC1204]

HI, thanks for the reply.

The previous treatment had been done for a while so I was starting to question myself!