How should VAT be treated when acquiring a new non-current asset?

When acquiring a new non-current asset, the treatment of VAT follows the principle that businesses can reclaim any VAT that is charged on assets purchased for business use, provided they are VAT-registered.

By choosing to debit the "At cost account" and also debit "VAT," you are acknowledging that the total cost of the asset includes the VAT. This means you are recording the non-current asset at its full price, which is essential for accurately reflecting the asset's value on the balance sheet. Additionally, by debiting VAT, you are recognizing the recoverable VAT amount that can be claimed back from HMRC (or the relevant tax authority), thus recording both the asset and the potential input tax reclaim.

This treatment ensures that your accounting records faithfully represent both the amount spent on the asset and the VAT that will reduce the overall cash outflow. Both elements are critical for accurate financial reporting and tax compliance.