The complete guide on reclaiming VAT on staff expenses

VAT & Staff Expenses

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 maximise 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.

HMRC has many resources on VAT and how it all works in regards to paying. It also explains how you can go about reclaiming VAT too. This article will focus specifically on reclaiming for staff expenses.

Claim up to 25% of your travel expenses back with our easy-to-use VAT solution.

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.

Start claiming your money back today.

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?

If you’re based in the UK, then a lot of medical services and insurances will be exempt from VAT and therefore you won’t need to reclaim. However, there are some that you might think of as being medical but aren’t. Anything that’s cosmetic or for aesthetic purposes, will be exempt.

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 organise all VAT receipts and original invoices.

For the UK, you need to keep hold of four years worth of VAT receipts and if you haven’t reclaimed some of these in previous years, you can still reclaim it today. Make sure this is communicated in your travel policy for your workforce, if they don’t keep their receipts then their expenses cannot be reclaimed.

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 maximising 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.

Claim up to 25% of your travel expenses back with our easy-to-use VAT solution.

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