This is a reminder for businesses who are VAT registered in relation to general VAT pointers which you may find helpful. Please be aware, per HMRC’s guidelines, appointing accountants to look after your affairs does not relinquish your responsibility. You still have to take reasonable care to make sure that the information you are providing or approving is correct.
VAT on vehicles
VAT can only be claimed on cars where the business can show that the vehicle is not made available for private use. If the car is stored at the client’s home, it will therefore be available for private use regardless of whether it is used for private journeys or not. If the car is available for private use, then no VAT can be reclaimed on its purchase.
For lease vehicles through the business, if the vehicle is used for private use then 50% of the VAT can be reclaimed. But watch the lease agreement! It must be lease hire and not a lease purchase. Even agreements titled lease hire can be lease purchase if there is a clause in it which states the business can make a lump sum payment at the end of the lease to purchase the car. If this clause exists in the agreement, it is a lease purchase agreement (regardless of whether they buy the vehicle or not) and therefore you should not be reclaiming any VAT.
VAT on entertainment
VAT cannot be claimed on customer entertainment. If your business is claiming VAT back on entertainment, HMRC will rule this as a failure of reasonable care error and therefore deliberate and issue significant penalties on this error. Expenditure is business entertainment providing these conditions are met –
- Hospitality is provided
- It is provided to persons who are not employees of your business
- It is provided for free
Claiming VAT pre-registration on expenses incurred
Prior to the date of registration for VAT, certain expenses which incurred VAT can be claimed on the first VAT return. These are –
- Services – the supply was made not 6 months before the date of registration
- Goods – the goods were made not more than 4 years before the date of registration
The pre-registration use of assets has to be considered when reclaiming the VAT back. If for example, a laptop was purchased within the 4 years prior to registration but was purchased for private use initially, then NO VAT can be reclaimed.
Self-billing rules with VAT
Under self-billing legislation, the agency issuing the self-billing invoice is the business responsible for ensuring they raise the correct VAT liability for the goods or services supplied to them.
Any investigations that result in additional VAT assessments will be made to the agency who has issued the self-billing invoice, not your business. So if you are contracting and considering whether to opt for the self-billing arrangement, from a VAT perspective it does give you some added security should the VAT man decide to investigate.