Guide to HMRC expense compliance: Maximising efficiency

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Ensuring HMRC compliance is a two-way process.

You need to ensure that all your tax responsibilities are being met but also that you’re able to reclaim any legitimate HMRC reimbursements. This requires getting to grips with VAT.

But the complexity of VAT legislation means that many companies are failing to properly manage this area of expense management and are losing out on money they’re entitled to. And the amounts being lost can be considerable.

Analysis by Webexpenses examined the typical out-of-office expenses claimed by a business traveler. It was found that around £87 could be reclaimed each week in VAT from various travel and accommodation costs.

In this white paper, we will provide a guide on how to improve efficiency through a better understanding of VAT policies, including,

  • Understanding common expenses
  • Managing mileage
  • Reclaiming overseas costs

What can be claimed?

The basic rules are 1. You can reclaim VAT on employee expenses for meals and accommodation that you pay for and, 2. You can’t reclaim VAT if you pay your employees a flat rate for expenses.

To work out exactly what can be reclaimed, the HMRC guidance is that: “You can usually reclaim the VAT paid on goods and services purchased for use in your business. If a purchase is also for personal or private use, you can only reclaim the business proportion of the VAT.”

Common expenses: What does and doesn’t have VAT?

  • Public transport 0%
  • Hotels 20%
  • Meals 20%

The challenge for finance teams is ensuring that people are able to negotiate these rules and correctly identify which VAT costs can be reclaimed. It’s a task that has been made considerably easier when using a digital expense management setup.

Managing mileage VAT

VAT can be reclaimed if:

  • Travel is for a business purpose
  • The employee has paid for fuel themselves
  • Costs have been reclaimed as a mileage expense

VAT can’t be claimed if:

  • Travel is non-business related
  • The company directly pays fuel on behalf of the employee
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