Can you disclaim VAT to fall within De Minimis

Are you allowed to disclaim input VAT so that you fall within De Minimis limits?

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I have a client who has just crept over the De Minimis limits for partial exemption and therefore an adjustment is required on their VAT return. It would be advantageous for the client to not claim some input VAT so that they are no longer "partially exempt". Is it possible to not claim some input VAT on expenses directly attributable to exempt supplies, so that when I re-calculate the partial exemption, they fall within the De Minimis limits?

Replies (24)

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By David Ex
29th Mar 2024 11:37

I vote no.

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Trevor Steel
By Trevor Steel
29th Mar 2024 15:24

The rules for de minimis limits (HMRC notice 706, section 11) refer to input tax "incurred", rather than "claimed". So you can’t remain below the limits by just failing to claim some of the input tax.

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VAT
By Jason Croke
29th Mar 2024 15:41

Agree with everyone else.

Maybe look at doing a proper direct attribution of all input tax, allocating maybe a few items to fully exempt/irrecoverable, remember there is more than one de minimis test, worth playing around but no guarantee it'll work but worth a punt.

Thanks (4)
RLI
By lionofludesch
30th Mar 2024 11:26

Bit of a grey area if you haven't got a tax invoice for some of the input tax.

Is it "incurred" if you don't know if there is any?

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Replying to lionofludesch:
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By FactChecker
30th Mar 2024 12:29

Getting a bit philosophical there for a Bank Holiday weekend (unless you're trying to introduce the Quantum 'observer effect' - the one where reality doesn't even exist in a definitive state independent of observation)?

It'd be an interesting discussion with HMRC ... but a considerable advance on the old "dog ate my receipts" - unless they observe you in the act of feeding the dog!

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Replying to lionofludesch:
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By Paul Crowley
30th Mar 2024 12:43

Interesting
Not able to reclaim input VAT without proof.
Does that mean that no proof makes it not input VAT?
The rules for paying staff mileage needing any old fuel receipt being one of the most stupid rules on claiming input VAT

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Replying to Paul Crowley:
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By DKB-Sheffield
30th Mar 2024 13:17

Paul Crowley wrote:

The rules for paying staff mileage needing any old fuel receipt being one of the most stupid rules on claiming input VAT

It's perhaps less ridiculous now... with the advent of EVs but, when mainly combustion engines... how many fuel stations were not VAT registered?! Any old receipt 'will do', but I've never known a fuel receipt, for road fuel*, that wasn't std rated.

Genuine thought though... employee (large company with hierarchical head office structure) claims mileage for travel. Uses their privately-owned EV for that travel (they also own a petrol car). Submits mileage claim and fuel receipts stating their petrol car used. VAT claim is clearly wrong. But... how much checking (by HR, or payroll, or employee expenses dept.) is proportionate to ensure claim relates correctly to the actual vehicle used?
- Safest option... don't claim the input VAT on any mileage claim?
- Risky option... assume employee (and approvers) is/ are honest, it's likely to be rare... and a potentially small amount of VAT based on current EV use?
- Prudent option... require photographic or video evidence of trips, odometer readings etc... but, is that overkill?

Clearly, this is all hypothetical. I presume most larger players adopt the 'safe' option and take the potential VAT hit, or have this agreed with HMRC. Furthermore, HMRC possibly aren't overly interested. But, further rises in EV sales, could lead to greater interest... or in light of HMRC's recent form, a proposal that HMG scrap allowing input VAT on mileage.

* Yes, I used to have clients that 'ran on red' (legitimately)... but they weren't 'mileage claimers'.

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Replying to DKB-Sheffield:
RLI
By lionofludesch
30th Mar 2024 13:46

DKB-Sheffield wrote:

Paul Crowley wrote:
The rules for paying staff mileage needing any old fuel receipt being one of the most stupid rules on claiming input VAT

It's perhaps less ridiculous now... with the advent of EVs but, when mainly combustion engines... how many fuel stations were not VAT registered?! Any old receipt 'will do', but I've never known a fuel receipt, for road fuel*, that wasn't std rated.

Ooooh - 1974. Petrol was charged at zero, 10%, 8% and 25% during that calendar year. Only the 10% and 8% were standard rated.

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Replying to lionofludesch:
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By DKB-Sheffield
30th Mar 2024 13:58

lionofludesch wrote:

Ooooh - 1974. Petrol was charged at zero, 10%, 8% and 25% during that calendar year. Only the 10% and 8% were standard rated.

Very good point, and I stand corrected. I should have confirmed that by 'I've never known' related to my professional experience (which is definitely post 1974).

Have a good weekend! It's sunny in my part of Yorkshire!

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Replying to lionofludesch:
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By Paul Crowley
30th Mar 2024 14:02

Still in education at that point, so not in the accounting treadmill.
Petrol deemed a luxury item item?
I seem to remember petrol rationing coupons being issued, but the rationing did not happen. I had mine for my 100cc motorcycle.

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Replying to Paul Crowley:
RLI
By lionofludesch
30th Mar 2024 14:16

Paul Crowley wrote:

Still in education at that point, so not in the accounting treadmill.
Petrol deemed a luxury item item?
I seem to remember petrol rationing coupons being issued, but the rationing did not happen. I had mine for my 100cc motorcycle.

Fuel crisis. It never came to official rationing though some garages limited how much you could buy.

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Replying to lionofludesch:
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By FactChecker
30th Mar 2024 14:52

True, but not of great concern to most ... only a fairly small minority had access to a car at all, and then of course found it extremely difficult to get any petrol to put in it.

And affordability was a factor - petrol had cost, on average, about 37p per gallon in the previous year - but had jumped in a matter of months to near 60p/gallon.

Personally I had a great time ... my motorbike was still cheap to run (and a few cans of petrol stashed at home - no sense of H&S in those days - ensured freedom from 1/2 day queues) AND I bought several cars whose prices had plummeted and awaited the upturn (which didn't take that long). Of course it helped that there was as yet no parking restrictions, so the world was my parking-lot!

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Replying to FactChecker:
RLI
By lionofludesch
30th Mar 2024 17:45

FactChecker wrote:

True, but not of great concern to most ... only a fairly small minority had access to a car at all, and then of course found it extremely difficult to get any petrol to put in it.

Actually, the proportion with access to a car or van hasn't changed much. There are more cars on the road because there are more households with more than one vehicle, plus population growth.

https://www.racfoundation.org/wp-content/uploads/2017/11/car-ownership-i...

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Replying to lionofludesch:
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By FactChecker
30th Mar 2024 18:31

Hmm, well I bow to your ability to locate supporting evidence (that the proportion with access to a car or van hasn't changed much) ... but am not very convinced by the RAC report.

It has a graph (fig 2) under which it does indeed say:
"Car ownership is closely related to the number of households and .. the increase in the number of households with two or more cars as the proportion of one car households has remained remarkably constant at 44% since the mid 1960’s."
*However* it also says:
"Over 77% of households in Great Britain have a car", but fails to mention that the data clearly shows this to have risen from a 'mere' 45% in 1975.

FWIW that doubling (in households with a car, not in number of cars overall) tallies more closely with my personal memory.
In my road (where I parked the many cars referred to elsewhere on here) there is an unchanged number of houses (around 100) from 1975. I don't dispute that the difficulty in parking is related to the number of those houses that now contain multi-generational families, each with one or two cars) - but back in 1975 only 6 of those houses (or rather their inhabitants) possessed a car.
Maybe 'household' didn't include council tenements (or some other anomaly)?

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Replying to DKB-Sheffield:
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By FactChecker
30th Mar 2024 14:41

Interesting thought game ... but, although my memories/experiences pre-date the specific scenario (i.e. not many EVs), it's not that different from whether or not the ER cares enough to differentiate between consumption in company car and that in 2nd family/spouse/child's car.

In the days when this mattered to me (as an ER or before that when employed to process expense claims), the priority order for how much effort to put in was:
(1) prevent fraudulent claims (cost to ER),
(2) adequate documentation against BiKs (cost to EE), and very much in last place
(3) protection against the next VAT inspection.

And as soon as it became obvious, as per Paul's point, that the inspectors were only interested in there being 'sufficient' receipts for the claimed input amount* ... zero interest in how it related to vehicle consumption or reason for journey ... the message to staff was 'keep all your petrol receipts, even those from other cars, so long as you have enough to cover your expense claims'!
[* = although they did enjoy sampling the receipts to look for an extra 40 B&H!]

FWIW the no 1 priority (checks to protect the company's money) were easy to accomplish, albeit rarely performed:

* Staff policy that anyone who uses a car (whether company or privately owned) for any business purpose *must* have previously completed a simple written declaration to HR (acknowledging their responsibilities), accompanied by the original minimum documentation (for HR to photocopy/scan) such as Insurance cert, Driving licence and MoT (or, if vehicle too new, Service book). And this 'pack' had to be completed annually.

[The official and true reason was that without such evidence of safety of car and of legality for it to be used for this purpose, ER is at all sorts of risk.
But of course it also doesn't take long to sum the mileage claimed since the 'pack' was last handed over to identify the most egregious claimants. Hardly precise, but simple.]

* And of course, as per various HMRC guidelines, many ERs make a nominal attempt at telling their EEs "no mileage log = no reclaim".
That tends to be more in the pursuit of protection against expenses being treated as BiKs - which is probably why ERs are less strict on this approach ('on your own head be it').

It's certainly an area where pragmatism (by HMRC and many employers) has rode rough shod over any pretence of 'best practice' ... presumably increasingly so as HMRC run out of resources (although lack of competence might win that race).

The truly interesting thought in my mind is what particular event will it take for the Treasury to take a sledgehammer to the whole area of travel expenses - and in particular anything involving individual cars.
The manufacturers/sellers/servicers of EVs in the UK are wholly reliant on the 'company car' sector (plus central/local subsidies for those installing/running energy 'charge-points'), so the choice is really between continuing to tinker and wholesale disruption.
They're not known for their bravery, but their bundle of policies is as about as consistent as the purity of water extracted from our rivers ... something has to give?

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Replying to FactChecker:
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By DKB-Sheffield
30th Mar 2024 18:03

All very true, and completely agree the 3-phase approach to travel expenses. VAT is a mere afyer-thought. Besides, there is probably more VAT that is not claimed on personal mileage than ia claimed erroneously (although... with the wonders of cloud accounting and DIY, I also suspect a lot of 7.5p per mile claims also go into the mix)!

I suppose one way to cause widespread chaos in the area of travel expenses for private cars, would be to stop any claims, and put a BIK on all travel. Perhaps this could be justified by allowing claims on train travel - facilitated by building new lines that go to nowhere, more quickly than they do now? Or, maybe not!

The above said, my concern over a couple of pence in VAT per mile, probably pales into insiginificance cf HS2 overspend and scrappage!

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Replying to DKB-Sheffield:
Pile of Stones
By Beach Accountancy
03rd Apr 2024 21:39

One of the joys of no longer working in a large company is not having to calculate the VAT on fuel on mileage claims...

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Replying to DKB-Sheffield:
Pile of Stones
By Beach Accountancy
03rd Apr 2024 21:43

The North Yorkshire Tourist Board are ahead of you. In their latest Visitors' Guide there is a lovely map, which is up to date as it includes all the latest improvements to the A1.

However it also includes the railway lines that were axed due to Beeching in the 1960's (Harrogate to Pateley Bridge anyone...)

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VAT
By Jason Croke
30th Mar 2024 13:25

As per DKB philosophy 101, VAT, like most other taxes do depend on a huge slab of honesty and goodwill.

All that cash in hand side hustles off eBay not declared on self assessment, sticking the wife down as a Director and paying her a huge wedge for doing nothing but at least extracts some cash from business tax efficiently, hey put the gym membership down whilst you're at it as it's part of "wellbeing costs for employees"...and VAT is hugely based on honesty.....yes that iPad and Mac and top of range iPhone are for business use (yeah, like a one man band window cleaner needs a £4k Mac but hey, he does the 'accounts' on it)....

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Replying to Jason Croke:
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By DKB-Sheffield
30th Mar 2024 13:49

Too true, honesty is the best policy.... assuming those being trusted are all good honest citizens - who actually *understand* the rules they are expected to work to.

If only there was a way to form a department, maybe an off-shoot of HMG, that could oversee and enforce tax compliance, and maybe close some loopholes along the way...?! Perhaps one with the ability to oversee all matters relating to tax Revenue and Customs duties. Maybe even give it a royal title... perhaps working on behalf of His Majesty? It's name could be shortend to something like HM'sR&C... or something similar? May take some time, and would probably need to recuit some trained staff but, it could work???!

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Replying to Jason Croke:
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By I'msorryIhaven'taclue
30th Mar 2024 13:51

Jason Croke wrote:

(yeah, like a one man band window cleaner needs a £4k Mac but hey, he does the 'accounts' on it)....

...and trains on Windows.

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Replying to I'msorryIhaven'taclue:
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By DKB-Sheffield
30th Mar 2024 14:02

I'msorryIhaven'taclue wrote:

Jason Croke wrote:

(yeah, like a one man band window cleaner needs a £4k Mac but hey, he does the 'accounts' on it)....

...and trains on Windows.

I misread that at first, and wondered why a window cleaner was claiming for train windows!

But, yes... why on earth would a Window(s) cleaner want a Mac. It's almost as bad for business as a BMW dealer driving a Nissan in my book!

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Replying to I'msorryIhaven'taclue:
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By Paul Crowley
30th Mar 2024 14:04

Brilliant

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
30th Mar 2024 17:46

I'msorryIhaven'taclue wrote:

Jason Croke wrote:

(yeah, like a one man band window cleaner needs a £4k Mac but hey, he does the 'accounts' on it)....

...and trains on Windows.

[chuckle]

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