Top mistakes seen when reclaiming VAT on expenses

We regularly see the same errors in relation to VAT claimed on expenses so we thought it may be helpful to highlight some of these to assist businesses preparing their VAT returns. If you are in any doubt, please get in touch.

• There is no VAT on trains, buses and flights so please do not try and claim VAT here.
• Most taxis companies are structured in a way that it is the driver providing the service directly to the passenger. Therefore, unless they have exceeded £90,000 in fares, they will not be registered for VAT. Some firms will operate differently so request a receipt to be sure.
• Uber lost its argument that it was an agent rather than a principal and therefore, it is Uber that is supplying the services to the passenger (and therefore fares should be subject to VAT). However many people noticed an absence of VAT on Uber charges. This appears to be because they are operating the tour operators’ margin scheme (TOMS). This applies where a business buys in certain travel services and supplies those on without material alteration. Under TOMS, only the margin is taxed and therefore, Uber will only be paying VAT on the difference between the price paid for the ‘bought in’ drivers and the fare paid by the passenger. The operation of TOMS by Uber means business users are not able to reclaim VAT on their trip. This is because the issuance of VAT invoices is not permitted under TOMS and no VAT amount can be shown on trip details.
• Uber Eats, Just Eat, Deliveroo and other food delivery providers will typically be acting as agent and VAT will be charged on the service fee only rather than the full meal amount. Make sure you check the invoice to identify the VAT charged.
• When reclaiming VAT on restaurant costs make sure you check how much VAT has been charged. If a tip has been added this will be outside the scope of VAT. It is only obligatory service charges that are subject to VAT. If something is voluntary, even if added to the bill, it will be outside the scope of VAT and therefore, VAT can only be claimed on the meal costs (assuming the cost is not business entertainment!).
• VAT can be reclaimed on staff entertainment but not on business entertainment. If both staff and non-staff are in attendance, VAT can only be claimed on the staff element if they are not there to host the non-staff. If they are, no VAT can be claimed. Also, director only entertainment is not valid for VAT recovery.
• VAT incurred overseas cannot be reclaimed on the UK VAT return. If these costs are substantial, it may be worth submitting an overseas VAT recovery claim. 
• VAT cannot be claimed on gifts if the cost to the business per employee or customer exceeds £50 in a 12-month period.
• Most overseas suppliers (Google, Facebook, LinkedIn) do not charge VAT on their services to UK businesses. However we regularly see this included in Box 4 (VAT recoverable on expenses) and this is incorrect. If VAT has been charged, it will likely be because your VAT number has not been provided and they are treating you as a consumer. Strictly, HMRC will not refund VAT that should not have been charged and it is therefore, advisable to update your account with your VAT number.
• Insurance Premium Tax (IPT) is not VAT and cannot be reclaimed.
• There is no VAT on milk, teabags, fruit, coffee granules and therefore, when stocking up on these for the office you will not be incurring VAT.
• You must hold a valid VAT invoice to reclaim VAT on costs. This can be a simplified invoice in some cases (think supermarket till receipt) but you can still only claim VAT if the items are subject to VAT and you are incurring the cost for business purposes.
• VAT can only be reclaimed on fuel to the extent it relates to business mileage. If private mileage is permitted/undertaken, a fuel scale charge is required.
• Not all tolls are taxable, it depends on whether it is private or operated by the local authority. Similarly, parking is subject to VAT if it is off street (carpark) but not if it is on street. A receipt is therefore vital to determine whether VAT has been incurred.
• No VAT can be reclaimed on cars purchased if they are available for private use. If a car is leased and used for both business and private purposes, 50% of the VAT can be reclaimed.
• Import VAT incurred when goods arrive in the UK is either paid at the time of importation or via the VAT return. Only official evidence is accepted for VAT recovery purposes which is the C79 import VAT certificate or the Postponed Import VAT Certificates. An invoice from a freight agent is not acceptable for claiming import VAT.