How to make the most of your VAT requirements with an expenses system

1. Cut VAT burdens

It may not be a widely known fact, but it’s definitely the case that the type of employee expense system you have in force can have a real impact on how much VAT you pay and how much you can claim back. Many people are under the impression that firms have to stump up 20% on all of the items that their employees buy when out and about – and while that’s the case for some expenses, it’s not the case for all of them, and things can quickly become complex.

Takeaway food is a good example. HOT takeaway food IS liable for 20% VAT but COLD takeaway food IS NOT… unless it’s intended to be eaten in a certain seating area – in which case, it will be! If you are not aware of this nuance or if your existing expense system makes it hard to distinguish and so too time-consuming to bother, you could be paying 20% too much VAT.

Another example is that training courses are also exempt from VAT… if they are provided by what HMRC calls an “eligible body” (e.g. a college). In short, it’s a complicated picture – but one that could seriously pay off if only you were able to untangle the precise nature of each expense claim, and quickly too.

2. Make sure you have an automated system to process your expenses

It’s clear that lumping all expense claims together and making the same assumption about how much VAT your business needs to pay on them could be having a detrimental impact on your company’s bottom line. However, it’s understandable why firms might do this, not wanting to waste even more time on these complicated categorisation jobs. In some cases, the cost of the extra time spent on admin outweighs the potential benefit of the extra VAT reclaimed. Firms are often against the sort of VAT expense process that requires lots of additional claim-related administration, as it takes time and finance team resources.    

That’s where an automated system can really transform your expense processing function. Manual data entry errors on a paper expense form can become a thing of the past if your system is able to automatically verify stated claim amounts. That, and categorisation based on the precise VAT reclaim the status of the particular expense is also completed automatically within a software package.

3. Keep compliant with the law

If you’re aware that your expense system needs a refresh but it not being business critical means it never quite makes it to the top of your priority list then Making Tax Digital is a good excuse to finally bring it to the fore. HMRC’s launch of its scheme in April 2019 means all VAT-paying organisations will now need to submit their returns digitally, via a system that integrates with their own. And as employee expenses almost always form part of a VAT tax return, it has never been more important to be able to access and provide exact figures. Therefore, the sort of precision that expense management software provides is not only likely to see you save money but also be fully compliant with new legislation.

VAT returns can seem scary and complex, especially with adding MTD into the mix, but it’s possible to both save cash and navigate the bureaucracy with an automated, tax-efficient system on the side.

 

Learn more about how our industry-leading expense management software deals with tax and VAT