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Steve Allen of VAT Advisers provides a practical VAT tip for company directors

Introduction - Receipt Not in the Name of the Company?

There are occasions where the director of a business will need to pay for business expenditure out of his or her own pocket. For example, you could be away on a trip and see a shiny new must-have piece of equipment at a knock-down price. You don’t have your company card with you, but do have enough cash in your personal account, so you buy it and then claim it back on expenses from the company. The problem is that the receipt is likely to be in your name, rather than the company’s, so how will the VAT inspector react on a VAT inspection?

The VAT Recovery Rules in Black and White

The law says that if a business wants to reclaim VAT on purchases, several conditions must first be met. Otherwise the VAT Inspector could refuse your claim. The two basic rules are:

• The VAT must have been incurred by the person reclaiming it
• The person making the reclaim must hold a valid VAT invoice for the supply

Exceptions to the Rules

There are one or two exceptions to these rules which all relate to small value purchases incurred in the course of business (i.e., less than £25 per transaction), such as:

• Coin operated machinery
• Car Parking
• Toll charges
• Telephone calls
• subsistence claims

In these cases, the original receipt should be passed to the company by the employee or director, but VAT can be reclaimed.

However, that doesn’t help with our original problem of the director buying a significant piece of equipment for the business on his personal card.

How to Avoid the VAT Trap

When you are buying goods in this way, you are really just acting as a conduit for your company, who is the real buyer, so you have met the first condition.

To meet the second, it would be wise to ask the seller to make the invoice out to the company, even though you are paying the bill. To avoid any concerns the seller may have, show him a business card to prove you are an employee of the company.

[ HMRC arguably has a responsibility to consider whether or not a claim for Input VAT may be allowed in the absence of a fully compliant tax invoice - for further information see their manuals V1-13: Input Tax - Ed ]