A businesses employees will pay Value Added Tax (VAT) on many of the goods and services that are purchased by them and expensed. If a business is VAT registered much of the VAT paid on expenses can be recovered which gives businesses an opportunity to recover cash however the correct procedures and processes must be followed to satisy HMRC.

Many businesses fail to track the VAT paid correctly and under claim or do not keep the correct records required to support claims which can often lead to refunds being refused.

This post provides a quick overview of recovering expenses and what is required to do so.

Staff Travel

Vehicle mileage

A business has the right to reclaim VAT on fuel expenses claimed by employees when they use their own vehicle for works business but it is often a pain to do so.To make a correct claim the business needs two things……

  1. A VAT receipt is supplied for each fuel expense covering the VAT to be reclaimed and
  2. An accurate travel log of the employees journey is recorded

The travel record is very important as HMRC will want undisputable proof that the journey being claimed was business related and to this end the following details are important :

  • Record where the journey started and finished including postcode
  • Who was visited and for what reason
  • Date of journey
  • mileage

The other important aspect is that only VAT on the fuel element of the expense should be claimed. (A mileage claim when using a private vehicle often includes wear and tear on the vehicle, Insurance, road tax etc)

Advisory fuel rates and information on their use can be obtained from HMRC’s website here


VAT on taxi fares can be recovered, which is normally a standard rate when charged. The main difficulty is that often taxi receipts do not specify if a charge includes VAT and some self employed taxi drivers may not be VAT registered so do not include VAT on the bill. It is always best to ask your employees to request a VAT receipt when travelling via taxi.

Hotel Accomodation and restaurant bills

Providing that the employee is provided with a vat receipt to add to their claim these types of expense are normally allowable to be reclaimed however…

  • Individuals or companies who are acting as contractors don’t count as employees therefore their expenses are not recoverable (unless they recharge the company including VAT)
  • Employees taking clients out to dinner is classed as business entertaining which isn’t claimable

Other forms of travel

Most forms of public transport such as train and buses are zero rated so no VAT would be reclaimable against these.

Reclaiming VAT from other EU Countries

Until such time as the UK has formerly exited from the European Union (and possibly afterwards)  businesses are able to reclaim VAT on expenses incurred from other EU member states, this can be important as a number of States currently have some of the highest rates in the world with EU directives setting the minimum rate to be charged at 15%.

HMRC has created an online services portal to deal with VAT refunds within the EU. A business needs to rg=egiter with the portal before it is able to submit refund requests.

General Rules for registration to the portal

  1. A business or individual must not be registered for VAT (or liable to be registered) within the country it is claiming from. If there is a permanent office in the country the claim will be rejected.
  2. If the application is for less than a full calendar year the minimum that can be claimed is €400 (or equivalent). If the application relates to a full calendar year then the least that can be claimed is €50.
  3. The latest that a business can submit  an application is 30th Septmber of the calendar year following the year in which the expense was incurred.

For a full set of rules on claiming vist HMRC’s website

What does an HMRC Inspector look for ?

Provided that you have good processes in place there should be no problems in passing any formal review of claims. HMRC simply want to see that you have a complete and accurate record of all expenses and will pay close attention to the following areas :

  • Record Keeping – Ensure that all documents being submitted are verified before being stored. Records should be quick and easy to look up and a good audit trail is kept (This is one of the many areas that a system such as Receipt Bank allied aith a cloud accounting book keeping package can excel)
  • A suitable approval process – Employee expenses should be approved by an appropriate level (which in small companies could be a fellow director but a degree autonomy of is desirable). Approvers need to take apppropriate care to ensure that expenses are correct and complete and that claims made match the receipts). In larger companies a multistage approval may be appropriate to decrease the liklihood of human error creeping in. This additional level of approval will provide HMRC with assurance that a businesses processes are under control and robust.
  • Clear Audit trail – HMRC like have an overview of the expense process from begining to end and if well documented will enable HMRC to identify that potential weaknesses are not inherent in the system as in, for example, not having recognised duplicate expense claims.

Generally the simpler and more straightforward your expense procedure is the better and any checks will be straightforward.