Reclaiming VAT on employees’ expenses
When you or your employees are out on business, you might incur out of pocket expenses such as car park charges for which you don’t receive a proper invoice. Can your company reclaim the VAT?
HMRC VAT toolkit
In July 2014 HMRC updated its VAT Input Tax Toolkit. It highlights common errors businesses make when reclaiming VAT on purchases. As you would expect from an HMRC publication it focuses on situations where you can’t or shouldn’t reclaim VAT. However, there’s the odd pointer that can save you money.
The right paperwork
In order to claim back VAT paid on purchases HMRC expects your company to have a proper invoice or receipt in the name of your business. However, it concedes that it’s not always possible, particularly in situations where the purchase was impromptu, say when it’s made by you or your workers while travelling on business.
Less detailed paperwork
HMRC allows VAT to be reclaimed on purchases of up to £250 as long as you have a receipt or invoice showing the key details, i.e. the name and address of the supplier, nature of the goods supplied, the rate of VAT and the seller’s VAT number. Typically, this type of receipt is produced by shops and garages.
Tip. If the receipt doesn’t break down the cost between the goods or services, work out the VAT you can claim by taking one sixth of the total paid.
No paperwork at all
For certain purchases HMRC allows you to reclaim VAT without a receipt or invoice at all. These must be for £25 or less – this limit is for each item. The concession applies to the following types of purchase:
- those made using coin-operated machines
- for off-road car parking
- toll charges for tunnels, bridges, etc.; and
- for phone calls using public pay phones.
One further condition to reclaiming VAT on expenses incurred by you or your employees is that your business must meet the cost of the purchase, i.e. it must reimburse the person who paid the expense.
Where your company pays a mileage allowance to you or your workers for business travel by car, it can reclaim VAT on the part of it that relates to fuel costs. HMRC publishes a recommended rate per mile according to engine size, or you can use your own mileage rate as long as it’s reasonable. To reclaim the VAT, you or your workers must provide your company with petrol receipts at least equal to the value of the mileage claim.
Tip. Your company’s expenses claim forms should include space to enter the amount of VAT. Make sure you and your employees itemise purchases and show VAT where applicable so that your bookkeeper can identify this and reclaim it.
In Summary: Your company can reclaim VAT on expenses it reimburses its workers, subject to conditions. For off-road parking, road tolls and purchases using coin-operated machines, each item must be for no more than £25. For purchases up to £250 it must have a receipt showing the supplier, the goods supplied and the VAT rate.
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