What VAT can’t ever be claimed?
The VAT on your business expenses (input tax) is not always recoverable. You can only recover VAT on goods or services to be used in your business.
If you make exempt supplies, e.g. receive rent for a flat, you have another issue to deal with: Partial Exemption.
Cars
You have never been allowed to recover VAT on cars bought for your business use. A VAT inspector will always check to see whether a business has recovered VAT on the cars it has bought.
NOTE: before anyone has apoplexy, some businesses can recover VAT on cars they buy, but not many! And if the car is wholly for business use the VAT can probably be recovered.
So, you buy a car that is for an employee to use and you can’t recover the VAT – that’s a few quid tied up that you’ll never get back.
Now if you lease the car you can recover half the VAT on the leasing charge. Those last two words are important, because that doesn’t include any management or maintenance contract that might also be part of the deal – you can get all the VAT back on that.
What if you only need a car for a few days?
So long as the period of hire is no more than ten days, you probably can recover all the VAT.
As will all things VAT there are exceptions to the above.
Business Entertainment
What is business entertainment?
It’s providing hospitality for guests who are not your employees. Let’s take an example: You have a new product that you want to launch with a suitable fanfare so you organise a launch event. This event, you decide, will consist of a presentation, a chance for guests to see the product and handle it, refreshments before and during the presentation with a buffet afterwards. Doesn’t all that fall under marketing? So it’s fully recoverable, right?
Oh, I wish it was – but VAT isn’t the simplest of taxes.
You have to apportion input tax between the business entertaining element and the other parts of the event.
In the example above part of the costs are attributable to such as marketing and advertising. The input tax on these is recoverable. The cost of the refreshments and the buffet, however, are business entertainment. The input tax on these costs is not recoverable. Just because a cost can be defined as a legitimate business expense doesn’t mean you can recover the input tax.
What about the staff Christmas party?
This is treated differently from entertaining your customers or potential customers, or anyone who is not an employee. You can recover all the VAT on such expenses where only your staff are attending. If staff are allowed to bring guests you can only recover the VAT on the proportion of the bill relating to entertaining your staff.
There are other things on which you can’t recover VAT. To get the full picture you need to ask your professional VAT adviser.
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