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How do I stand if I claim VAT on personal items?

Is it my duty to only submit VAT returns that I know relate to business?

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I work in practice for a small company. I do accounts prep mostly, however I have done the occasional VAT return. I am AAT if that helps. I did a VAT return the other day, and submitted it with client approval but I purposely posted blatant personal expenses to the directors loan account and claimed no VAT. A partner of the company, upon finding out, immediately told me very sternly that I am not in a position to make that judgement and said that I should have put them through. Am I correct or is he Correct? What could happen to me if I put through personal expenses and claim VAT and it is discovered by HMRC? 

 

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12th Jun 2019 23:15

There are two distinct issues you need to consider in light of your post:
1. where should the expenses be posted?
2. what the VAT treatment of the posting is?

The answer to point 2. depends on the answer to point 1.

Point 1.

If the director wants the personal expenses post to the P&L (I assume that's what you mean by "put them through") that's his or her decision to make as your boss. Where you post them might be tricky to decide as if they are private expenses they will constitute remuneration (for income tax purposes either a benefit in kind or possibly salary). If you've mistaken the purpose of the expense and they are for the company's trade then they can be posted to the appropriate cost heading.

Point 2.

If the expenses are for a business purpose the normal rules for recovery of VAT apply. But if the expenses are private and recorded as such the input VAT cannot be reclaimed. If the expenses are private but attributed to directors remuneration the VAT can be reclaimed, however depending on the nature of the expense the company might need to account for output VAT on an amount equal to the expense - in that case the ins and outs make it VAT neutral.

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By Matrix
to tonycourt
13th Jun 2019 05:44

I agree this would be remuneration if they are not business expenses.

Jack - I would ask the partner on what basis they are treated as business expenses as they look like personal expenses. Maybe you are missing something, the partner should have explained, or maybe the partner is a crook.

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to Matrix
13th Jun 2019 08:55

Hi matrix

They were fuel receipts for his wife's car and his home electricity bill. His wife has nothing to do with the business and he has no home office. Is it my place as a book keeper to make that decision? What can happen to me if I do post personal items to p&l and claim VAT?

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to tonycourt
13th Jun 2019 08:53

Hi Tony, thanks for your response.

Yes the director wanted to post them in the P&L and claim VAT on the expenses. There were two main ones; the first was fuel for his wife's car - hers is petrol and his is diesel, these were petrol receipts. The next was his home electricity bill, he has no home office. The partner wanted me to put them into the p&l and do nothing more with regards to remuneration, he wanted me to treat them as business. My question is: is he right or am I right to post them to directors loan? And if I am right, could I get into bother if id have listened to the partner?

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13th Jun 2019 14:11

If these are personal expenses then you are right - he can't claim them as business expenses and get tax relief. If this was the case everyone would do it.
Is there anyone senior at the company you can speak to, do you have a HR person or an in house accountant? Personally I would start to look around for another position because when HMRC come calling you will be the one in the firing line. The Director clearly has no scruples, petrol receipts and electricity today but other things will follow if he gets away with it.
Have a word with your professional body as well you may have some reporting obligations under MLR. I'm not sure how it works if your an employee in a small company.
Edited - I've just noticed that this is a client not as I thought an employer - this would be an ex client and a MLR would be sent in.

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13th Jun 2019 11:12

I've worked for accountants like that in the past, they trot out the "it's down to the client, they sign it off" or similar.

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to SouthCoastAcc
13th Jun 2019 12:30

I'd be worried given the disclaimer added to the returns that the person actually filing it has to actively or at least tacitly agree to, stating they have checked the figures and they are accurate. That really shifts the burden of responsibility a bit.

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