- Recovering Value Added Tax
Concur director, Matt Lewis, explains that among individuals and business entities alike, issues around value added tax continue to be an area of confusion.
Value Added Tax has been around for more than four decades; however, as HMRC amends and introduces new regulations and rules, it has grown even more complicated.
As the authorities continue to put more effort in clamping down tax irregularities, scrutiny will continue on an upward trend, especially considering the fact that VAT is the UK government’s second largest income.
While ensuring compliance with VAT, the HMRC introduced the EVP (Extended Verification Process) recently, with the aim to counter tax avoidance and evasion. As a result individuals and businesses must ensure that they reclaim VAT on expenses accurately, now more than ever.
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A majority of businesses are unaware of many VAT rules as the guidelines evolve and change on a continuous basis. You can however stay ahead of the game, by simply being aware of VAT payment regulations, inside-out.
To help you recover the highest possible amount of VAT on expenses, without crossing the tax authorities, we have listed some of the top VAT rules you might not know about.
Do not park off the street: The amount you pay to park your car in a multi-story car park or off the street is subject to VAT, while the one you make to park on the street is not.
Take away food: Where you intend to eat your food determines whether you will be charged VAT or not; even though food is generally considered to be a grey area with regard to VAT. You will pay VAT for the food you eat, such as a bottle of water and sandwich, if you choose to eat at a café. However, you will only be charged VAT on the bottle of water, and not the sandwich, if you choose to take away the food. In theory, going for the cold food take away option should be more affordable. In the case of some foods, such as crisps and sweets, whether you take them away or not, VAT is charged regardless.
Buying gifts: You can reclaim VAT on cheap gifts, priced below £50, not VAT inclusive, meant for employees to celebrate special occasions and birthdays. This however can only be done once a year. Make sure that the total price is below £50 if you buy several gifts for one employee. Remember that as good as sending a gift can be VAT is not reclaimable on expensive gifts.
Renting vehicles: The best option is to lease. Lease the car(s) you wish to provide to any employee(s) instead of buying, if you wish to reclaim VAT on the same. None of the VAT charged on outright vehicle purchases can be reclaimed, while half of the VAT on lease rentals can be reclaimed. The full VAT amount can be reclaimed on cars hired for business trips that last for less than ten days. The 50 percent restriction will be applied, as is the case for hire periods exceeding ten days, if the car is used for personal use at any point during the hire period; make sure that this does not happen. A large number of companies don’t claim VAT on what travellers spend according to VATIT.
Entertaining employees versus clients: You can reclaim VAT on the amount paid for entertaining employees, while the same is not possible when it comes to entertaining clients.