The complete guide on reclaiming VAT on staff expenses

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VAT & Staff Expenses

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VAT & Business entertainment

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VAT & Business Travel

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A significant amount of money is left unclaimed when it comes to staff VAT expenses.

Reclaiming VAT on employee expenses can be a time-consuming process, yet it offers substantial savings for small businesses and large corporations alike.

Understanding how VAT works, VAT rules and rates, and the eligibility criteria is essential for successful VAT claims. This article will guide you through the necessary VAT reclaim steps to effectively recover funds from employee expenses, ensuring you maximize your savings.

What is VAT?

VAT, or value-added tax, is a consumption tax assessed on the price of goods and services, covering everything from production to distribution, and eventually the sale to the customer.

Businesses collect VAT on behalf of the government, which uses the revenue for various government initiatives and programs.

As a consumer, VAT is typically included in the price you pay.

The HMRC (the UK's tax, payments, and customs authority) provides extensive resources on how to pay and reclaim VAT in the UK. There is no VAT in the US, but the IRS (Internal Revenue Service) provides the following information on reclaiming VAT on foreign value-added taxes: “Taxes, such as foreign value-added taxes, sales taxes, and property taxes are generally ineligible for a credit, but may be eligible for an itemized deduction.”

What can you reclaim on staff expenses?

To reclaim staff expenses, employees must be:

Directly employed by you

Directors, partners, or managers

Self-employed people (if they’re paid similarly to your employees)

Helpers or stewards who assist with events

Pensioners, former employees, shareholders, and interviewees are not eligible.

The expense must be necessary for the employee's work, incurred while performing their duties, and paid for by the employee.

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Employee travel expenses

You can reclaim VAT on staff expenses related to business trips, including meals and accommodation.

However, if you pay employees a flat rate for expenses, you can’t reclaim VAT.

For fuel used during business travel—whether in a personal or company car—you can reclaim VAT as long as you can demonstrate it was for business purposes. Only the percentage of mileage that pertains to business use is eligible; private use expenses cannot be reclaimed. For more on this see our section on how to reclaim VAT on fuel and business mileage.

Expenses for entertaining

VAT cannot be reclaimed for staff entertainment expenses since such costs are not deemed necessary for business operations.

However, other business expenses related to entertainment might be eligible for VAT recovery—learn more about business entertainment expenses in this article.

Keep in mind that processing staff expenses and claiming VAT may take time, as there may be delays between submitting your VAT return and receiving your refund. Nevertheless, this wait can result in significant savings for your business.

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Top businesses tips for efficient VAT recovery solutions

For effective VAT recovery, it's essential to be aware of useful tips and common questions that can enhance your reclaim process. Remember, you can’t reclaim VAT if you pay employees a flat rate on expenses.

Can you claim VAT on foreign travel expenses?

Most countries allow you to reclaim VAT on travel expenses, including accommodation, meals, and transportation like rental cars and public transport, provided they aren’t used for personal use

Non-EU companies can reclaim VAT on employee business travel and expenses incurred within the EU. The types of expenses eligible for reclamation may vary based on local regulations and legislation.

Can you reclaim VAT on staff medical expenses?

In the US, sales tax, instead of VAT, is applied at the state and local levels. Sales tax, however, is generally not recoverable, unlike VAT in other countries. Businesses in the US cannot reclaim sales tax on staff medical expenses incurred within the US.

However, if employees based in the US incur medical expenses in countries where VAT is applied to medical services, VAT recovery may be possible.

Remember: Keep all of your VAT receipts for recovering VAT

To reclaim VAT efficiently, it’s essential to store and organize all VAT receipts and original invoices Ensure this is communicated in your travel policy. Effective expense management now will benefit your bookkeeping efforts at the end of the tax year.

Find out your VAT refund for your next upcoming trip

Try out our VAT refund calculator to find out how much money you can save on business travel.

Wrapping Up

Managing staff expenses is important for maximizing your business’s revenue. Implementing a detailed system and processes makes it easier for you to reclaim expenses as and when needed. With this guide, you’ve got much more insight into how staff expenses can be reclaimed in the future.

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