VAT Compliance - Get Your Tax Questions Answered

When your employees travel for business, create expenses or submit invoices, your business is charged Value Added Tax (VAT). But how much of this are you entitled to reclaim in VAT returns? There are subtle nuances and strict VAT rules on what is reclaimable and what is not. 

Here's some answers to the VAT Questions we’ve received over the years.

Question 1: If an employee is travelling on the road for business, but goes via the office, can they claim mileage for the full journey?

Answer: Generally, travel between your home and normal place of business is not considered a “business” journey by HM Revenue & Customs (HMRC). Therefore, the business element of the journey starts at the office, not home. Some companies require employees to deduct their normal work trip from any mileage claim but the choice about claiming, or not, should come down to common sense and be covered in your company’s expenses policy.

Question 2: Is it true you can claim back VAT on up to £25 worth of expenses without a receipt?

Answer: The ‘£25 receipt’ concept comes from an old, often misunderstood, piece of legislation. The law was originally put in place to claim VAT back on purchases from coin-operated machines (such as telephone boxes, train ticket and car parking machines), which did not historically provide receipts for VAT purposes.

In addition, this legislation comes with conditions. With coin-operated phone boxes a rarity, and parking machines commonly providing receipts these days, as a rule of thumb you shouldn’t try to claim anything in your VAT bill without a VAT receipt as you may end up having to deal with incorrectly charged VAT costs.

Question 3: Can I reclaim VAT on a taxi receipt?

Answer: If the company is VAT registered, and you get a valid tax receipt with a VAT number on it, then yes. However, the truth is, most taxi drivers are sole traders that are below the VAT threshold and won’t therefore be a VAT registered business. So, when it comes to reclaiming VAT on taxi receipts it’s probably best to be cautious.

Question 4: How long do you need to keep VAT receipts for?

Answer: Generally, you need to retain VAT receipts such as those on business supplies for six years in the United Kingdom, and often longer in European Union country member states such as France, Germany or Spain.

Question 5: Are there any consequences for those who don’t keep receipts?

Answer: Yes, probably. With expenses, you are reimbursing your employees for what they paid out, legitimately, for business – if you can’t prove that they have incurred those expenses then you’re just giving them an extra boost to their salary, which should be taxed accordingly. You must have proof that the expenditure has been made and is legitimately reimbursable by the company when you submit a UK VAT return. Receipt record keeping helps support your case.

Need more support? Listen to our VAT reclaim and compliance webinar for more insight.