Part two: Expense Myths about VAT and UK travel expenses
This is the second blog post in a three part series looking into commonly held myths about expenses, VAT and TAX. Basically this aims to be a really easy to read guide as to the things you need to be aware of when managing expenses. If you missed the first blog post you can find it here.
Myth 4 – all company cars are subject to taxation
Actually, no! Whilst a company car can fall into many taxation classes based on mileage, engine size, and usage there is no tax to pay on the following:
Pool cars are a simple way of providing convenient transport for employees who need to travel on company business from time to time. There is no stipulation on the type of vehicle, and the pool car can even be used for transport emergencies such as train strikes. The only requirements are:
- The car is available to more than one employee
- The car is only used for business
- The car is not kept at employees’ homes when not in use.
Providing a car for an employee with a disability is looked on with generosity by HMRC. As long as the car has been adapted for a person with specific needs, you’ll have no tax to pay.
As with a pool car, it can only be used for business. Disability cars, however, can also generously be used for commuting. If the disability car is also used for private use, you need to report the car to HMRC.
Myth 5 – reclaiming VAT on mileage isn’t worth the effort
Actually, it is. Calculating VAT on mileage may seem complicated, but it doesn’t have to be – and it’s worth getting right. In fact, if VAT on mileage isn’t being reclaimed properly your company could be losing out on up to 3p per mile! By using an online solution for mileage claims. Reclaiming VAT and dealing with HMRC will be simpler, faster and more accurate.
Myth 6 – you can reclaim VAT on all travel expenses
Yes.... and no. Your company must pay the full costs, or a part of them, for travel if employees are working for your company away from their normal place of business. In this case it’s possible to reclaim the VAT incurred on these expenses. If, however, you already pay your employees a flat rate for their travel and subsistence costs, then you cannot reclaim all of the VAT.
There are strict guidelines on what ‘constitutes an employee’ for the purposes of reclaiming VAT.
You CAN reclaim VAT on expenses incurred by:
- People directly employed by your company
- Directors, partners or any other managers
- Self-employed people (subsistence allowance only)
- Helpers and stewards.
You CAN’T reclaim VAT on expenses incurred by:
- Shareholders (unless they also work for you)
- Pensioners and former workers
- Job applicants
Myth 7 – dealing with HMRC is too complicated
HMRC doesn’t want to spend all day checking your VAT claims and chasing you for lost receipts. But paper-based systems often contain inaccuracies, lost paperwork or miscalculations that HMRC simply has to check up on. If you’re using an online solution, all the information will be up to date and conform to legal requirements, which makes dealing with HMRC a piece of cake.
Myth 8 – you must have original paper receipts to meet HMRC requirements
Not necessarily. The good news is that even though HMRC requires a copy of a receipt, this can be in a digital form. However, they must be clearly legible, easily accessible, printable and not manipulated or editable. By using an app to capture receipts on the go, employees are more likely to keep accurate records and give the finance team confidence in the data. Moreover, you can claim VAT back using the digital copies. And you can even get companies to audit all of your receipts.
Second lot of Myths Busted!Watch out for our third and final blog with more about VAT and mileage reclaim in the UK, but if you can’t wait until next week, you can download all 15 myths here.
Regarding all the myths discussed above and in the coming blog posts always check with HMRC in the first instance regarding all TAX and VAT issues as each companies circumstances are different.