When you are completing your VAT return and claiming back VAT you have paid on purchases, it should be a simple job that is easily completed. But it is also easy to get things wrong without even knowing. Some of the rules are complicated and unfortunately, ignorance is no defence if HMRC pick up your mistakes. They can, and will, impose heavy penalties.
Rules not Widely Known
Did you reclaim the VAT on your company car when you bought it? If you use it to ferry the kids to school on your way to the office, and pick up the groceries on the way home, that means it is partly for private use. Even the commute to work is private use. Only the VAT on cars used solely for business purposes, insured as such and kept at the business premises, is reclaimable.
On the other hand, you can reclaim the VAT if you buy mobile devices for your staff. If they are then used for personal reasons as well as business use, you can only reclaim the VAT element of the cost of the business use. However, if you make a nominal regular charge to the staff member who has an iPad or laptop, you are technically leasing it, which is business use, so all the VAT can be reclaimed.
Of course, you keep all your bills for the requisite number of years. Have you ever received an invoice that didn’t show the VAT separately? Did you check whether the items purchased were VAT-able, and at what rate? If 20% VAT was due, how did you calculate the amount that you could claim back? You should have multiplied it by a sixth to come to the figure that HMRC will accept.
When Can you Reclaim VAT on Entertaining Costs
If you want to treat your loyal customers, or host a networking meeting, this is classed as entertaining third parties, for which VAT is not reclaimable. If some of your staff also attend, you may be able to reclaim a proportion of the VAT. Treating your staff to a summer outing or a Christmas party is a different matter. Staff entertainment is eligible to be added to your VAT return in the claiming section.
The government website has a whole section on VAT. To find out more about the rules on reclaiming, go to this page and follow the relevant links. Your local bookkeepers will also be a mine of information on VAT matters, so you would be wise to discuss any concerns you have with them.