VAT & depreciation on a vehicle bought for development

[duncan drennan]

We develop electronic products and will be purchasing a vehicle (4 door sedan) for the purposes of developing some products with it. Eventually the car will be stripped apart and used as a prototype for development and to demonstrate some new products.

My understanding is that we can claim the VAT on the purchase back, as this is a development tool which will be used in the process of generating income. In this case it would be the deemed VAT on a private sale of the vehicle.

In terms of depreciation and writing the vehicle's book value off, what are we allowed to do here? Is it possible to write it off entirely on purchase, as we will be taking it apart (not immediately, but within the near future)?

And then a complicating factor (always has to be one) - the vehicle will be purchased from me, the director/owner of the company. Does this cause any arm's length issues?

[CLIVE-TRIANGLE]

I am not aware of any exception to the no claim on passenger vehicle rule, regardless of your intended use.

IFRS for SME requires that all expenditure on research and development be expensed, capitalising some or all is actually no longer an option. So yes, you in effect write it off as R&D.

In your tax submission, provided it qualifies, you claim 150% of R&D over 3 years, 50%, 30% and 20%. Provided it meets criteria and you complete the R&D questionnaire to the Minsiter of Science and Technology.

On the face of it your last question has no impact. But my understanding is that it must be new (I stand to be corrected). However there is a proviso to include expenditure to defray expenditure of a connected person.

Best you have a good look at Section 11(D) of the Act.