Costs that businesses can’t claim VAT back on
Particularly for smaller firms, Value Added Tax (VAT) causes stress and headaches for their owners because of the perceived complexity of the tax. And to be fair, if that’s how you feel, you have a point. It’s not an easy tax to administer and it’s going to become more complicated with the shift to Making Tax Digital in April 2019.
There are certain expenses for which you can claim the VAT back on and others you can’t. There are other expenses where it’s too close to call either way and you need the opinion of an accountant.
In this article, the Panthera Accounting team present our 3 minute guide on the costs that businesses can’t claim their VAT back on.
Anything spent on your business for which your supplier charged you VAT can be fully reclaimed if and only if the expense was incurred for solely business reasons.
The costs could be the purchasing of IT equipment and software, training courses you or your staff attend, office furniture, and much more. All of these costs are incurred because you do need them to deliver your products and services more effectively to end users.
What if your business is based from home? HRMC will argue that, because there will be a degree of personal use of what has been bought as well as business use, only part of the VAT can be reclaimed. How much will vary according to personal circumstances but you can use the same methods of calculation you use when claiming expenses against income tax or corporation tax when running a business from home (click here to read our article on working from home).
If you are working from home, please make sure that your supplier bills you in the company name otherwise you won’t be able to claim any part of the VAT back under any circumstances.
There are three different methods used by small business owners to claim VAT back on the fuel they use.
If you pay yourself a rate per mile (45p per mile for the first 10,000 miles and 25p thereafter per annum) for fuel and other motoring expenses, around 18p of that is considered to be for fuel. You can claim VAT back on that amount – divide the figure by 6 to calculate the VAT element of the 18p. You must keep your receipts however please remember that the receipts will not tally up to the mileage claims because your car will have been used for private purposes as well.
If your business pays for both private and company mileage, you may opt for the fuel scale charge. The fuel scale charge was designed to make accounting for VAT on private fuel usage easier. If you wish to reclaim VAT on all of the fuel your company purchases for a car and it’s provided free to the employees (including you as a director), this may be the better option for you but please check with us.
Alternatively, you can choose to keep a detailed mileage log only claiming the VAT back on actual business travel.
Even if you buy a car for purely business reasons, you can’t claim the VAT back on the purchase of a car under any circumstances.
The situation is different with leasing however where all the VAT you’re charged can be claimed back with the exception of when the vehicle is hired for more than 5 days. If this is the case, you can only claim back 50% of the VAT on your lease payments (although all VAT can be reclaimed on the maintenance part of your bill).
If you have to travel abroad for business, you can reclaim VAT on most of your EU business travel costs via a specific online site provided by HMRC. These travel costs can not be reclaimed on the standard UK VAT return.
Most countries will allow you to claim VAT back on hotels, car hire, restaurant bills, and so on although some countries do not allow hotel-derived VAT to be recovered.
The rules are complex on VAT and HMRC do give tax payers a lot of wriggle room in correcting their mistakes. If you have the correct evidence still to hand, you can recover unclaimed VAT going back up to 4 years either separately or on your next VAT return.
To speak with your Panthera Accounting partner on all issues of VAT, call us on 01235 768 561 or drop us an email to firstname.lastname@example.org – we’ll be back in touch with you shortly.