Claiming of VAT based on clients estimated amount

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A simple question. A client is paying the employees expenses back in rounded sums. How would the VAT be accounted for this?

For example the employee is buying fuel of £26.70. This fuel receipt is then handed over to the employer for the employee to claim back. The employer pays back £25 to them. Does this mean that the whole £25 can have 20% VAT claimable as input tax?

 

Replies (6)

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By Bobbo
08th Feb 2022 14:12

Why is the employee being left out of pocket to the tune of £1.70. Wouldn't be pleased about that if I was said employee.

However, you haven't actually stated why the employee is being reimbursed at all for a purchase of fuel.

Is it that the employee has purchased fuel for a vehicle owned (or leased) by the employer?

Or is the employer just very nice and is reimbursing (most of) the cost of employees filling up the tank of their personal vehicle?

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Replying to Bobbo:
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By Bobbo
08th Feb 2022 14:16

Just realised OP didn't even say it was fuel for a vehicle - I have erroneously made an assumption whoops.

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Danny Kent
By Viciuno
08th Feb 2022 14:50

I would never include a VAT reclaim for an estimated amount without supporting receipts to back it up. Although a trivial amount I tend to find that once you let this type of thing slide once clients expect you to do so at every opportunity.

Agree with Bobbo though, I'd be unhappy if I was the employee. If they are not then I'd be sceptical about whether the funds were actually spent. Bobbo also raises various other very good points to consider.

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paddle steamer
By DJKL
08th Feb 2022 14:57

Could you effectively have multiple petty cash floats in play, the reimbursement merely being to top up these floats?

For years we worked our floats re employees on this basis (handymen) until I got fed up and started reimbursing exact sums expended (give me the invoices I will give you some money)

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VAT
By Jason Croke
08th Feb 2022 16:35

Seems a very casual/sloppy approach to employee expenses.

For the business to reclaim VAT on an employee expense, it must reimburse the employee in full.

What you describe could be seen as a "subsistence" payment. These are like where employee has to spend a night away on a job and they are allowed a budget of £25 per night for food, so whether they have a 10 course feast or forage for nuts in the carpark, they get £25. Even where receipts are supplied, subsistence is not input tax/recoverable. https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit42500

If the employee is reimbursed in full, (ie, an expense claim form, then the business now holds a VAT receipt upon which it can reclaim input tax.

How much input tax will then depend on what basis the expenses was submitted. VAT registration does not mean all VAT can be reclaimed without question, the input tax must still have a wholly business purpose.

If the employee has only driven business miles with no personal use, then the VAT is reclaimable in full (ie, filling up a tractor to only use on a farm), but seeing as most motor vehicles are taken home, not all the fuel is used for business trips, then you'd usually use the advisory fuel rates or road fuel scale charges to work out what input tax can be reclaimed.
https://www.gov.uk/guidance/advisory-fuel-rates

In a situation where the employee is not fully reimbursed and instead paid slightly less than the receipt shows, I'd say you'd have to apportion the input tax to reflect the "cost" to the business.

For example, I buy £25 of fuel and business refunds me £20, the cost to the business is £20, even though the receipt is for £25....so apart from VAT, is there not an opportunity to fiddle petty cash and overstate expenditure?

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Replying to Jason Croke:
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By Hugo Fair
08th Feb 2022 20:26

Everything that Jason has said, but with one other comment/question. Unless my brain has reached the end of the day a little early ...

OP said "the employee is buying fuel of £26.70. This fuel receipt is then handed over to the employer for the employee to claim back. The employer pays back £25 to them. Does this mean that the whole £25 can have 20% VAT claimable as input tax?"

Is OP saying receipt was for £26.70 + VAT (in which case the hard-done-by employee is shouldering the cost of VAT)?
Or is the receipt for £26.70 inc VAT (in which case why would employer think of claiming 20% VAT on top of the VAT inclusive cost)?

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