Permissions
You will equire an Access Role with the following permissions:
- Base Information
- Expense Items
Meal Item
The rules for reclaiming VAT on meals can be challenging, and getting the calculations wrong for business entertainment and subsistence is something businesses cannot afford to do.
- Subsistence - “Payment made to an individual in relation to work-related travel, accommodation and meals - beyond those normally required.”
- Entertainment - “Payment made when someone in business provides a meal or social event to a customer, potential customer or another person such as a professional contact.”
An organisation is only able to claim back the VAT on subsistence (staff members) and not entertainment (everyone else). Therefore, in a situation where an organisation takes clients to lunch, it is slightly more complex as the portion of the VAT to be reclaimed needs to be calculated for just the subsistence element.
Example
A member of Sales and Professional Services take a client (3 people) to lunch and the bill is £70.
To work out the VAT rate for the whole bill, the calculation is as follows:
or alternatively:
Now that the VAT for the whole bill has been calculated, it must be split down to find the amount of VAT which is actually reclaimable (subsistence).
In this example, £4.67 will be the amount of VAT which is reclaimable by the organisation.
Within Assure Expenses this calculation can be broken down even further to include remote workers, directors, spouses/partners and number of others. For more information about how this is configured within Assure Expenses, view Create a Split Expense Item.
For help configuring VAT on a meal item within Assure Expenses, view the Meal tab in Configure VAT on an Expense Item.
Mileage Item
As a general rule, when claiming for mileage, you will be reimbursed a pence per mile from your organisation. This is not only to cover the cost of fuel but also servicing, tyres, tax and general wear and tear. HMRC regularly publishes their recommended mileage rates which currently suggest that a claimant is paid a rate of 45 pence for the first 10,000 miles, which then drops to 25 pence for anything over 10,000 miles.
There are also scenarios where an organisation will offer a car allowance to cover wear and tear and then provide a lower rate per mile to cover the fuel costs.
For the examples below, we will use HMRC's recommended mileage rates.
To calculate the reclaimable amount for a 100 mile journey, the simple formula would be as follows:
However, as an organisation, you are unable to claim back VAT on the whole 45 pence per mile. The amount which can be claimed back, you can only claim the VAT for the actual fuel portion of that figure. HMRC publishes advisory rates based upon the fuel type and engine size of the vehicle.
- For this example, a car with a 2000cc petrol engine will be attributed 20 pence towards fuel costs from the full 45 pence which is paid. Therefore, the organisation can only claim back VAT on 20 pence per mile.
Example
I claim 100 miles (before the 10,000 mile threshold) at a rate of 45 pence, with a VAT rate of 20 pence.
- The claimant will receive 100 * 0.45 = £45
- Amount that VAT can be calculated on 100 * 0.20 = £20
For help configuring VAT on a mileage item within Assure Expenses, view the Mileage tab in Configure VAT on an Expense Item.
Standard Item
The term "Standard Item", used within this documentation, refers to an expense which uses the current standard VAT rate within the UK and one which is not related to meals or mileage.
The current standard VAT rate within the UK is set at 20%. The calculation below shows how the VAT is calculated on a £100 electrical purchase from a high street store.
Basic Calculation:
A common misconception when trying to calculate 20% VAT on an item, is to figure out 20% of the gross total. In the case of the example below, that would be £20 (£100/100 * 20). This is incorrect since the GROSS = NET + VAT. The NET figure is actually 100% of the total and after adding VAT, creates the gross figure, which in this example, is 120% of the net total.
The calculations to correctly calculate 20% of a £100 item are shown below:
or alternatively:
For help configuring VAT on a standard item within Assure Expenses, view the Standard Item tab in Configure VAT on an Expense Item.
