Enter Your E-mail

VAT Voice by Steve Allen

Steve Allen, Director of VAT Solutions (UK) Ltd, clarifies what the recovery of VAT on business expensesOver the years, we have had a number of clients contact us about the recovery of VAT on travelling and business expenses. A lot of the confusion centres on knowing which items actually have VAT on them.

The basic position is that you can recover VAT on travel and subsistence expenses incurred for business purposes. However, the reclaiming of VAT on the costs of entertaining business guests is specifically excluded by legislation (SI 1992/3222, Art5 (1)). Business entertainment covers the provision of hospitality of any kind, including the provision of food and drink, hotel accommodation, concert and theatre tickets, entry to sporting events etc.

Exception to the rule

However, the VAT on the entertainment and subsistence of employees can be recovered ‘unless the provision of entertainment is incidental to its provision for others’ as HMRC puts it. But what exactly does this mean, and how much VAT may you recover?

Example

Brummy Ltd, based in Birmingham, send a sales executive to an important meeting with a new client, Geordie Ltd based in Newcastle. Brummy Ltd sends him up the day before the meeting and he stays in a hotel for the night so that he is fresh for his meeting in the morning. The meeting goes well and the sales executive invites Geordie Ltds’ Finance Director and Buying Manager to join him for lunch. How much VAT can Brummy Ltd recover and why?

Tip

Brummy Ltd can recover the VAT on staff subsistence expenses, so they will have no problems with the VAT on the sales executives’ hotel room. But what about the lunch, isn’t it business entertainment? The answer is partly entertainment and partly subsistence. The purpose of the trip was to finalise a sales contract, any business entertainment is secondary to the main purpose of the trip. Therefore, the VAT on the subsistence relating to the staff can be recovered.

But what about the travel expenses?

You can recover VAT on road fuel used via a mileage allowance (though this is about to change) or on invoices (providing you account for the appropriate motoring scale charge) or by using business mileage records.

But what about claiming VAT back on train, air and bus tickets? A lot of businesses do this automatically and never think about it until they get a visit from a VAT Officer. The problem is that passenger transport in a vehicle, ship or aircraft designed or adapted to carry not less than 10 people (including the driver) is zero-rated. That means there is no VAT to be claimed and if a VAT Officer finds that you have been claiming VAT back he will disallow it and charge you interest. On the bright side he can only go back three years so any errors more than three years old cannot be assessed.

With regard to taxis, the supply of taxi services is a taxable supply, but most self employed taxi drivers are not VAT registered, so when you get a receipt for your expenses claim, ask the taxi driver if he has charged VAT.

In order to recover the VAT you are charged you should obtain a VAT invoice, although for supplies of less than £250 excluding VAT you only need a ‘less detailed’ tax invoice.

January 2006

Steve Allen
Director, VAT Solutions (UK) Ltd
Email: steveallen@vatsolutions-uk.com

VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via their website: