Introduction »

Toolkit offers help on input VAT deduction

HMRC have issued a number of toolkits to help taxpayers and their agents file accurate returns. The toolkits highlight the common problem areas. They mainly cover specific technical areas but they also stress the need for good record keeping to support returns. Even where records are well kept, mistakes, duplications and omissions may occur, resulting in input tax being claimed too early, too late or in the incorrect amount.

Reducing penalties

Accurate record keeping is crucial as penalties may be charged on a business which files incorrect returns, especially where sufficient documentation is unavailable to support the returns. This article looks at some of the key issues considered in the input VAT toolkit. Further areas are detailed in the toolkit itself which is available from HMRC’s website.

Unpaid suppliers

A business should reverse an input tax claim if the supply remains unpaid for six months after the date of supply or the due date for payment (if later).

Private and non-business use

When expenditure has a mixed business and private or non-business purpose then only the proportion of the input VAT relating to the business use proportion may be reclaimed. There are special rules for assets which are used for business and private purposes, in these circumstances it may be possible to reclaim the VAT in full and charge an output VAT charge to cover the private use (known as the Lennartz approach). This is a complex area so please do get in touch if you believe your business may be affected by these rules.

Change of use

If goods on which input tax has been reclaimed are later put to private or non-business use then an adjustment needs to be made. This is usually done by charging output tax on the supply.

Partial Exemption

Many businesses are partially exempt, meaning that they make exempt as well as taxable supplies. Where a business is partially exempt it may only reclaim a proportion of its input VAT subject to a de minimis test (£625 a month).

Business entertainment

VAT on business entertaining is not recoverable. However a business sometimes incorrectly treats this expenditure as advertising and claims the input tax in error.

Cars and motoring expenses

• VAT is generally not recoverable on the purchase of cars and is restricted to 50% on leased cars.
• Where input VAT is claimed on the purchase of total fuel costs for a car then there is an output tax charge due to cover the private use.

International transactions

This is a complex VAT area. In particular many services purchased from overseas suppliers require the UK recipient to account for both output VAT and input VAT on the same supply. This is known as a reverse charge and we can assist your business by reviewing the exact position in relation to international supplies.

If you would like any help in calculating input VAT recovery please do not hesitate to contact us.

Introduction »