Andrew Needham looks at the claim of input tax on employee purchases for the business.
Employees often purchase goods or services on behalf of their employers. This can happen when away on business, entertaining clients, petty cash purchases and buying fuel. Employees can use the businesses’ own money from petty cash, corporate credit of purchasing cards or their own money, claimed back through the businesses expense system.
Problems with VAT recovery
One of the requirements for recovering the VAT on purchases is that the invoice should be properly addressed; in other words, it is addressed to the VAT registered business. The main problem with recovering VAT on employee purchases is that the purchase invoices are not always addressed to the business and can be addressed to the employee instead.
Corporate purchasing and credit cards
Corporate purchasing cards (or, ‘procurement cards’) are more like charge cards than credit cards. They allow commercial organizations to pay for their business to business purchases electronically. Use of the cards can significantly reduce the paperwork associated with the traditional process of corporate purchasing. In the UK, the cards are designed to be fully compatible with VAT accounting requirements and so make the reclaiming of VAT much simpler.
Where a business issues its staff with corporate purchasing or credit cards, the issuing bank or financial institution provides the invoice on the supplier’s behalf and normally supplies a monthly summary which HMRC will accept as evidence for VAT deduction even though they are not issued by the actual supplier.
Petty cash
Most petty cash purchases are made with the business’ funds or it is directly reimbursed to the employee. In most cases the purchase will be less than £250, which is the limit for a less detailed VAT invoice. The less detailed VAT invoice does not have to be addressed to the customer so in most cases using them as evidence for VAT recovery is perfectly acceptable as they aren’t actually addressed to anybody. If the purchase is for more than £250 the employee should be asked to request a full tax invoice from the supplier in the business’s name.
Expenses
HMRC accepts that input VAT is reclaimable on purchases made through a business’s expense systems and treats these as supplies made to the employer, provided the employer meets the full cost, even when it may look as if the employee has received the supply. Some examples of this are:
- road fuel and other motoring expenses;
- subsistence costs such as meals and accommodation necessarily paid for whilst away from the normal workplace;
- removal expenses arising from company relocations or transfer of staff;
- sundry items such as small tools or materials purchased on site.
HMRC’s guidance says that they should decide whether the supply is legitimately paid for by the employer for the purpose of the business. If it clearly is, then input tax recovery should be allowed. This is in keeping with the intention of the legislation and is a (rare) example of HMRC taking a purposive approach to the legislation rather than a literal one.
Self-employed workers
Some organisations may engage a substantial part of their workforce as self-employed, although in all other respects they perform the role of employees.
Tribunals tend to treat subsistence type expenditure incurred by self-employed labourers or contractors as being payment for supplies made to their ‘employer’ and allow the recovery of input tax.
Practical Tip :
If your employees make purchases on behalf of the business you can normally recover the input tax on the purchase, providing you have acceptable evidence for input tax deduction.
