It’s common for directors and employees to buy things for the company in their own name or to use their personal Amazon account for convenience. The problem is that the invoice is then addressed to them and not the company. Can you claim the VAT back? VAT Expert John Craig provides the answer.
The key conditions for input VAT recovery are as follows:
1. The VAT relates to a supply of goods or services to the person recovering the VAT.
2. The supply must be for a business purpose.
3. There is a direct and immediate link between the supply and taxable supplies made, or to be made, by the person recovering the VAT.
4. The person recovering the VAT must be registered for VAT.
5. There must be evidence of the VAT incurred (usually an invoice).
6. The VAT on the invoice must have been correctly charged, e.g. at the proper rate.
In addition to the above, the VAT must not be specifically blocked from credit, e.g. the specific block on recovering VAT on the purchase of cars.
The problem is that it’s still a commonly accepted myth that condition 1 is not met if the invoice is not in the business’s name and is instead in the name of a director or employee.
Helpfully, HMRC’s guidance explains that condition 1 means that only the person (business) who receives the supply is entitled to reclaim the VAT and that isn’t necessarily the person who initially pays the bill. The guidance gives examples of supplies that would be treated as made to the business, provided the business meets the full cost, even when it may look as if the director or employee has received the supply:
• Road fuel and other motoring expenses.
• Subsistence costs such as meals and accommodation necessarily paid for whilst away from the normal workplace.
• Removal expenses arising from company relocations or the transfer of staff.
• Sundry items such as small tools or materials purchased on site.
The list is only a guide and is not exhaustive. As long as the expense is for the business, you can claim any VAT back on it.
Once the rules are clear it’s then a matter of putting them into practice, reclaiming VAT whenever possible.
You should review the expenses claim form to ensure it includes a space to show any VAT paid on purchases they’ve made on behalf of the business. Having a separate column makes it much easier for the finance team to spot when they should be reclaiming the VAT. However, directors and employees won’t always complete the form correctly so it’s important to check the forms carefully to ensure any VAT paid is reclaimed.
Evidence and payment
There are further steps to take before you can reclaim VAT. You must hold evidence that VAT has been paid and secondly reimburse the director/employee. You should ensure that directors and employees provide a receipt or invoice for all purchases where feasible. Have a policy of no receipt/no reimbursement. Of course, for certain types of expense, e.g., parking meter fees, this is not possible. However, the likelihood is that where a receipt/invoice can’t be issued VAT wasn’t charged.
You can reclaim VAT on a legitimate business expense paid for by a director or employee which you reimburse even if the invoice is in their name. You must have proof that VAT was paid, for example a VAT receipt or invoice. Ensure the expenses claim form for your directors and employees to use includes space to show the VAT element that they paid.
Contact our team with any further queries on VAT or similar matters.