Recent research suggests that many small businesses are missing out on valuable opportunities to reclaim VAT. Here we consider some of the key areas relating to VAT reclaims.
Value Added Tax (or ‘input tax’) is payable when you buy goods or services for your business. VAT-registered businesses can generally reclaim the input tax paid regardless of the VAT rating of the goods and services (i.e. standard, reduced or zero-rated). You cannot normally reclaim on goods and services that are exempt from VAT.
Business versus personal use
VAT cannot be reclaimed on goods and services used solely for non-business activities, including those bought for personal use and cars that are not used exclusively for business purposes. There are some specific exemptions for charities – please contact us for further information.
If your purchase is for both business and personal use, you can reclaim only the business proportion of the VAT.
You can normally reclaim VAT on employee expenses if they relate to business travel and subsistence (e.g. meals, canteen facilities or accommodation), unless you pay your employees a flat rate for subsistence when no VAT is recoverable.
While you cannot generally reclaim VAT on business entertainment, you can recoup the VAT on entertainment for staff, such as parties and team building exercises, as long as the entertainment is provided for employees only.
If you entertain both employees and business contacts, you can only reclaim the proportion of expenditure that is not used for business entertainment. However, if the employees present are also acting as host to the business contacts, VAT will not be recoverable.
You cannot reclaim VAT when you purchase a new car, unless it is used exclusively for business purposes. However, you can generally reclaim 50% of the VAT when leasing a car. VAT on repairs and maintenance can be reclaimed as long as your business pays for the work. Generally all other business motoring expenses, such as fleet management or off-street parking, are VAT-reclaimable.
The rules are complex and liable to change, so contact us for the most up to date advice. We can help make sure you’re paying the correct amount of tax and reclaiming the amounts you are entitled to.