We have listed below some of the more commonly encountered business expenses where VAT input tax recovery is prohibited or restricted.
1. Cars - cannot reclaim VAT added to purchase price unless the vehicle is used to directly create income for the business: for example a taxi, a self-drive hire car or a car for driving instruction or where there is 100% business use and there are stipulations in place to prevent any personal use of the vehicle.
2. Car Leasing - reclaim of VAT added to car lease rentals is usually restricted to 50%.
3. Car Fuel - if employers meet the cost of employees' private fuel they will have to pay a VAT car scale charge based on the car's CO2 emissions.
4. Car Parking - although the VAT on car parking charges for genuine business purpose can be recovered not all car parks charge VAT. And there is no VAT on on-street parking meter charges.
5. Business Entertaining - VAT cannot be reclaimed on the entertainment of UK customers and non-UK business contacts who are not customers. (Note a recent change in EU legislation means that it is now possible to recover VAT when entertaining non-UK customers.)
6. Subsistence - although the VAT included in subsistence paid to employees can be recovered, the input tax added to the subsistence paid to contract workers, who are not employed by the company, cannot be reclaimed.
7. Business events and parties - when a business organises an event which is also attended by directors and employees acting as hosts, the whole of the VAT on the cost is irrecoverable. None of the cost may be attributed to staff subsistence.
8. Business Gifts - VAT can only be reclaimed if the total value of gifts to the same person in the same year does not exceed £50.
9. Mobile Phones - where businesses allow private calls to be made at no charge the VAT recovery must be apportioned on a fair and reasonable basis. Where employees pay for the private use of their phones the business is allowed to reclaim the input tax in full provided an output tax charge is accounted for in respect of private use.
Disclaimer – Please note: The ideas shared with you in this article are intended to inform rather than advise. Taxpayers’ circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
If you like this article and would like to subscribe to INSPIRED, our FREE monthly newsletter, then please click SUBSCRIBE.Subscribe