Reclaiming VAT is an area of small business accounting shrouded in myth. Yet while it might seem intimidating and, frankly, unappealing to dive head first into untangling complex tax laws, it is a necessary part of operating an SME.
At the recent FD Surgery, Real Business’ event series for entrepreneurial finance directors, Jim Khan from Taxback International and Steve Roberts from SAP Concur tried to tackle some of these myths.
When they asked the audience if they were confident they were claiming back everything they were entitled to – both nationally and internationally – only five people in the room raised their hands. Don’t forget – this was a room packed with finance directors, which should give some indication of how deep these myths run.
Here’s what they suggested are the top five myths surrounding VAT reclaim:
• Reclaiming VAT in mileage isn’t worth the effort
• Dealing with HMRC is too complicated
• The time it would take to reclaim international VAT would outweigh the return
• I can’t go back in time to reclaim
• Paper receipts are required for all VAT reclaim.
Reclaiming VAT in mileage
According to SAP Concur, you can reclaim 100% of the VAT incurred on fuel paid for business purposes, but it can be tricky to prove that no private journeys were made. You can of course keep a detailed mileage log and then claim VAT on any business trips, but this may sound like just more paperwork to the time-poor SME owner. Hence, a myth is born.
However, did you know you can also reclaim 100% of the VAT and pay a VAT fuel scale charge? This is a simplified way of taxing private fuel use. If you’re racking up a lot of mileage, this could be a good option to consider.
Dealing with HMRC is too hard
Sure, doing your taxes is probably not how most people would choose to spend an evening – the idea of it alone conjures up images of bureaucracy and lost paperwork. However, if you hire an accountant or invest in an online solution, you could really simplify the process for yourself.
International VAT reclaim isn’t worth the return
Around 4% of global travel spend, and 10% of European travel spend (excluding airfare) offers reclaimable VAT, according to SAP. If your business spends a lot of time overseas, this could really add up. It just doesn’t make sense to ignore it.
Claiming for past expenses
This myth is based on a kernel of truth – there is a time limit. However, it might surprise you to know that you can reclaim VAT even before you registered with HMRC.
According to gov.uk, from your date of registration the time limit is four years for goods you still have, or six months for services.
Paper receipts are required
This is not always the case. HMRC does require a copy of your receipts, but they can be in digital form as long as they are clear, easily accessible, printable and not edited. There are apps available that enable employees to scan their receipts on the go, which makes it less likely they will go missing on the journey home.
These solutions could make your life easier, but it’s worth double checking first which documents need to be held in their original, hard copy form. You don’t want to get caught out.
At the end of the day, it boils down to this – your business could be owed money. Why wouldn’t you reclaim it?
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