Common VAT Errors

VAT On Disbursements

One of the most common mistakes I have seen in preparing VAT is that business the VAT treatment on disbursements.

A lot of businesses add recharged expenses to an sales invoice. This could be something as simple as post and packing or it could be a recharged airfare on a consultancy contract. Both of these expenses do not have VAT charged on them when you buy them from the original supplier.

Naturally, businesses think that when they recharge the expense, they should not charge VAT on these items to their customer. I am afraid that this is wrong!!!

Once something is a recharged as a disbursement it must be charged to the customer including using the VAT rate that applies to the mains supply of goods or services.

Unfortunately, once this error is discovered is normally too late for the business to go back to the customer to ask for the VAT so the business will have to bear the cost of the mistake.

Claim of Input VAT on mileage allowance claims

Most business claim mileage when a director/employee uses their own private vehicle for business purposes. However, most businesses (unless using the flat rate scheme) do not realise that they can claim Input VAT on the petrol element of the mileage allowance using the upto date advisory fuel rates. Below is a link to the latest advisory fuel rates from 1st June 2010 onwards.

http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

For example:-
If you drove 1,000 miles on business a car with an engine size of over 2000cc the petrol element of your mileage allowance claim is:
1000 miles @ 21p = £210 which is split
VAT Element is £210 x 7/47 = £31.28
Net Purchase is £178.72

To ensure that you make the claim for Input VAT, the business should keep the petrol receipts that cover the business mileage. They should be dated before the mileage claim is made and at least cover the cost of fuel for business journeys.

For any further information contact Mark Hewitt at Trueman Brown http://www.truemanbrown.co.uk/