VAT Myths: BUSTED!

With the end of the tax year fast approaching, businesses need to look at reconciling their balance sheets.

Understanding where VAT can be reclaimed on expense submissions can be problematic and there’s often a lot of confusion.

While there’s a host of information on the government’s website, in this article we’ve listed three common mistakes employees, and businesses, make when thinking they can claim, but in reality, can’t.

❌ 'Mileage allowances are tax free' ❌

When it comes to claiming back vehicle mileage, for cars, vans, motorcycles and bikes, the limit is 10,000 miles. Anything over this amount has to be reported on through a P11D form and applies regardless of which forms of transport your employees take. 

Now that things are starting to return to normal, it’s especially important to keep an eye on staff travel. It’s in these instances that automated mileage tracking is particularly useful.

The software allows employees to enter their travel details, usually through an app, and the distances are determined using Google Maps. The fuel rates are then calculated according to HMRC regulations. All this can be done on the move, making milage tracking extremely handy as well as accurate.

❌ 'The staff party is tax-deductible' ❌

While there is a bit of ‘wiggle room’ on this, not all staff gatherings are exempt. There are very set rules a business must follow if it wants to claim the VAT back, these being: 

• The event itself costs less than £150 per person

• It’s open to all your employees

• It’s an annual event, such as a Christmas party

If you can meet these criteria, you can claim the tax and National Insurance contributions back on it. The rules apply regardless of whether it’s an online, virtual or physical event. If your business has more than one location, you can host as many events as you like – as long as the combined events don’t come to more than £150 per head and all employees can attend.

❌ 'VAT on all travel expenses can be claimed for' ❌

While you can claim the VAT back on most employee travel expenses, you can’t do it on everything. Travel, accommodation and meals are VAT deductible, but not if you pay employees a flat expenses rate. Nor can you claim on entertainment costs. In terms of  claiming for motoring expenses, more regulations can be found on the gov.co.uk website. 

Those who qualify for VAT reclaims are:

• Someone directly employed by the company and not through an agency

• Directors, partners and other managers

• Self-employed people who are treated as employees (although you can’t claim on travel expenses)

• Helpers or stewards who assist in running events

Those who don’t count as employees are:

• Shareholders who are not employed by the business

• Pensioners and former employees

• Someone applying for a job, for example interviewees

The world of expense claims can be fraught with technicalities and complex legal requirements.

Expense management platforms help businesses cut through the red tape so that the process is as efficient as possible and fully compliant with HMRC requirements.

They take the hassle out of the fulfilment process, enabling your staff, and accountants, to get on with moving your business forward.