VAT What you can and can’t claim...

It’s not until you’re through the VAT threshold or have taken the proactive decision to register for VAT that you really get a sense of what a complex beast it is. You may be fooled into thinking that VAT is either standard rate, zero rated or as in the case of gas, charged at an alternative, but fixed, rate e.g. 5%. In terms of the rates which are charged it is relatively simple, but within product categories you will not only find discrepancies as to what does and doesn’t attract VAT but also in some cases what portion of the VAT can be reclaimed an, if any at all.

Many of you will remember the ‘pasty tax’, George Osbornes ill-fated attempt to address the longstanding grey area between the treatment of VAT on hot and cold foods, of which much hilarity was made at his expense. But this is not such a silly example of what is an incredibly complex area.

Here’s some other oddities that highlight how tricky it can be to get a VAT return right:

  • Flapjack Vs A Sports Bar – Imagine two oaty products sat in front of you. They have 98% the same ingredients but one is packaged as a sports bar and one a flapjack. Would you believe that one attracts VAT and the other doesn’t? A flapjack is a cake and is therefore subject to zero rated VAT whereas the Sportsbar is Standard rated!
  • Parking – You drive into Chichester and have the option of three places to park. On street, in a District Council car park or a County Council Car park. Only the District Council car park will allow you to claim VAT as on street parking cannot be claimed and The County Council is not VAT registered!
  • Company car costs – If you are thinking of leasing a company car and a business lease to save the VAT, beware, you can only claim 50% of the VAT on lease costs if the car is going to be available for private use too. You can however, put maintenance costs, cleaning, road fund licence and insurance through as legitimate expenses against a company car and claim VAT (where applicable) on these expenses.

You should also remember that private use items cannot be claimed via the business. This may sound obvious, but a number people will purchase goods via their business instead of taking drawings and in a bid to offset the VAT. So, things like works on your home and holidays should not be claimed.

With consultation currently underway on reducing the VAT threshold to around £20,000, the likelihood is more companies will be liable for VAT registration in the future and so getting to understand the technicalities of the VAT system is important. If you’d rather not try and understand the intricacies of what is a complex system, then don’t worry – I rather enjoy it and will happily manage your VAT for you as part of our bookkeeping service.

< Trading in Foreign Currencies | Analysis Levels – Making the numbers mean more >