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10th Jun 2019 20:40

you have to charge the employee VAT, like you charge everyone else you sell things to (or from another view, you lent him the money to buy the goods at the vat inclusive price)

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11th Jun 2019 09:05

There are two ways of looking at this

1) You’ve lent your employee money to buy tools. In that case, you should charge the gross (ie including VAT) cost of the tools to an employee loan account.
2) You’ve bought some tools and resold them to your employee. If that is the case, you should recover the input tax but also charge output tax when you sell them. Unfortunately the fact that s/he is using the tools at work doesn’t mean you can recover the VAT.

The net effect of both is the same. Loaning money to employees (the first option) may stricly mean that you need to be authorised under the Consumer Credit Act. Whichever path you follow, you should ensure that you have considered how you will be repaid if the employee leaves, and whether the repayments take the employee below minimum wage as you could then be in breach.

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By ChrisKH
13th Jun 2019 10:22

As Paul Benny has advised, but mention to the employee that they may be able to claim income tax relief online on cleaning, repairing or replacing specialist tools they use in the workplace. There is no relief for the initial purchase. Look this up on www.gov.uk.

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13th Jun 2019 10:39

Simple answer - NO. If that was possible, all employees in all companies would buy personal things through the company and pay back the net amount, thus effectively benefiting from a VAT refund.

This is kind of a basic question isn't it? I mean the expense is only allowed to a company if it is wholly, exclusively and necessarily incurred for its daily trading activities.

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By ChrisKH
13th Jun 2019 10:57

I would add that I have come across this scenario a few times in organisations of varying size; it's a common misconception usually advocated by those who wish to pay the vat free amount!

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By tom123
13th Jun 2019 11:12

Don't forget, if you are deducting it via payroll, it comes from net pay not gross.

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