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Recovering VAT on staff expenses

Although the VAT rules normally prevent you reclaiming VAT on supplies that are not made direct to you, there are certain circumstances when the rules are relaxed.

Subsistence expenses

For instance, the VAT element of subsistence expenses paid to your employees may be treated as input tax. In order to qualify for this concession, employees must be reimbursed for their actual expenditure and not merely receive round sum allowances.

VAT invoices (which may be made out to the employee) must also be obtained.

Reimbursement for road fuel

The VAT legislation permits you to treat as your own supply road fuel which is purchased by a non-taxable person whom you then pay for the actual cost of the fuel. This would therefore allow you to recover input tax when you reimburse your employees for the cost of road fuel used in carrying out their employment duties.

Again, VAT invoices must be obtained.

Mileage allowances

The legislation also enables you to reclaim the VAT element (or a reasonable approximation) on the amount attributable to fuel of mileage allowances paid to employees (or subcontractors). The fuel element must be close to the fuel-only mileage rates.

HMRC requires the following records to be kept:

  • The mileage travelled and whether business or private
  • The vehicle’s c.c.
  • Rate of mileage allowance
  • The amount of input tax claimed

VAT receipts should be provided by staff, which must total the amount on which VAT is reclaimed each quarter.