A quick-guide to claiming VAT
The world of VAT is a difficult one to get your head around whether you have had to manage returns/claims before or not. For big businesses, the intricacies of knowing when and what to claim can be quite complex and demand the services of a specialist, but even for SMEs the process is not always straightforward or immediately clear. We are regularly asked whether things fall under the scope of VAT or not and so with Making Tax Digital looming, meaning more of you will be adding transactions to a system and having to determine the VAT treatment, we thought it would be timely to offer a quick guide on the key aspects of expenses and purchase from a VAT perspective.
General rule of thumb – Without understanding more detailed aspects of VAT and varying rates, the simple rule is you can only claim if the supplier is VAT Registered (based on the invoice). If you are unsure or cannot see VAT details on the paperwork, then assume no.
There are some other common rules which will occur regularly:
- Travel is Zero rated – This will apply to anything from Transport for London (TFL), flights or public transport
- PAYE, salaries, Corporation Tax are all outside of the scope
- Client Entertainment – Any costs directly linked to the hosting or entertainment of clients are zero rated. This would relate to meals, drinks, tickets or any corporate hospitality. Events for marketing purposes, e.g. exhibitions or client briefings are not classed as client entertainment.
- Company car costs – If you are thinking of leasing a company car via a business lease to save the VAT then you can only claim 50% of the VAT on the lease costs if the car is going to be available for private use too. You can however, put maintenance costs, cleaning, road fund licence and insurance through as legitimate expenses against a company car and claim (where applicable) on these expenses.
- Personal or private purchases cannot be claimed via the business. This may sound obvious, but a number people will assume they can purchase goods via their business instead of taking drawings and in a bid to offset the VAT
If you’re not sure, it’s best not to claim or seek advice before trying to claim. The worst thing to do is claim for something that is not allowed and risk a rigorous inspection down the line!