How to record the purchase of multiple capital assets with one bank transaction if you’re on the VAT Flat Rate Scheme

This article explains how to record the purchase of multiple capital assets that were paid for with a single bank transaction if you’re on the VAT Flat Rate Scheme.

If your business is on the VAT Flat Rate Scheme, you’re entitled to reclaim VAT on the purchase of capital assets over £2,000 when the assets were bought in one transaction. This applies even if the individual assets themselves cost less than £2,000.

For example, if you bought a computer for £1,500 and a printer for £600 in a single purchase, and paid £420 of VAT, a single bank transaction for £2,520 will appear in FreeAgent.

To record the purchase, you’ll need to follow the steps below to split the bank transaction, create journal entries to reclaim the VAT and then adjust box 7 of your VAT return.

Please note that you’ll need full (level 8) access to your FreeAgent account to complete the steps below.

For information on how to record the purchase of a single capital asset using multiple bank transactions, please see this article instead.

1. Split the bank transaction

Once the relevant bank transaction has been imported into your FreeAgent account via a bank feed or uploaded from a bank statement, you’ll need to split the transaction into the individual values of the capital assets excluding VAT.

Navigate to the relevant bank transaction

To do this, navigate to the ‘Banking’ tab at the top of the screen and select ‘Bank Accounts’ from the drop-down menu.

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Choose the relevant bank account from the list.

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Select the transaction that you’d like to explain.

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Select ‘More Options’ in the bottom-right corner. Alternatively, you can press the 'Alt' key (if you’re using a PC) or ‘Option’ key (if you’re using a Mac) whilst selecting a bank transaction to open ‘More Options’.

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Allocate the appropriate amount to the first asset

Select ‘Purchase of Capital Asset’ from the ‘Type’ drop-down menu, enter the amount you’d like to allocate to the first capital asset purchase in the ‘Value’ field and select ‘0%’ from the ‘VAT’ drop-down menu.

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Select how long the asset will be useful to your business from the ‘Asset Life’ drop-down menu and choose the relevant asset type from the ‘Asset Type’ drop-down menu.

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Select ‘Create New Explanation’ at the bottom of the screen to explain the amount to the first capital asset.

Allocate the appropriate amount to the second asset

Next, you’ll need to explain and categorise the relevant amount of the bank transaction to the other capital asset. You’ll notice that FreeAgent has created a new transaction for the remaining amount to be explained. In the above example, we’ve explained £1,500 of the original £2,520, so FreeAgent has created a new transaction for the remaining £1,020.

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To explain the remaining balance between multiple categories, select the new red transaction and select ‘More Options’ in the bottom-right corner. Alternatively, you can press the 'Alt' key (if you’re using a PC) or the ‘Option’ key (if you’re using a Mac) whilst selecting a bank transaction to open ‘More Options’.

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Select ‘Purchase of Capital Asset’ from the ‘Type’ drop-down menu, enter the amount you’d like to allocate to the second capital asset purchase in the ‘Value’ field and select ‘0%’ from the ‘VAT’ drop-down menu.

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Select how long the asset will be useful to your business from the ‘Asset Life’ drop-down menu and choose the relevant asset type from the ‘Asset Type’ drop-down menu.

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Select ‘Create New Explanation’ at the bottom of the screen to explain the amount to the second capital asset.

Explain the remaining balance

Next, you’ll need to explain and categorise the VAT, which should be the remaining balance of the bank transaction if you’ve purchased two capital assets. If you’ve purchased additional capital assets, follow the steps above to split the transaction again and allocate the amount to the next asset.

You’ll notice that FreeAgent has created a new transaction for the remaining amount to be explained.

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Select the new red transaction, then select ‘Other Money Out’ from the ‘Type’ drop-down menu and select ‘Payment from Contra Account’ from the ‘Category’ drop-down menu.

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Select ‘Explain Transaction’ to complete the process and explain the bank transactions in full.

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A record of the bank transactions being explained will appear in your Audit Trail report.

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2. Create journal entries to reclaim the VAT

After you’ve recorded the capital asset purchase, you’ll need to create journal entries, dated the same date as the bank transaction, for the VAT amount that was posted to the Contra account above:

  • Debit code ‘818 - VAT Reclaimed’
  • Credit code ‘998 - Contra Account’

If you’re unsure which journal entries are required, please speak to your accountant.

A record of journal entries being created will also appear in your Audit Trail report.

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3. Adjust box 7 of your VAT return

If the values of any of the individual capital assets are under £2,000, FreeAgent will not add these to your VAT return, therefore you’ll need to manually adjust box 7 of your VAT return.

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If you’re unsure how much to adjust box 7 of your VAT return by, please speak to your accountant.

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