1st August 2018

Employers: Are you missing out on VAT recovery?

As an employer, sometimes you provide perks to your employees as a reward.
Should you reclaim the VAT?
To answer this, you need to address the following 2 questions:

Is it a business expense?

Staff salaries and NI, pensions, and expenses are one of the largest costs for businesses.
Where you incur VAT on any of these you can reclaim it in full because it’s a business expense.
The same is true for benefits in kind (perks) you provide to your employees.

Is it a business supply?

Services which employees provide to employers are outside the scope of VAT.
However, where employers provide services or goods to their employees (this includes perks), it is not outside the scope of VAT.
Instead, it’s a business supply, because it is made in the course of business, by the employer and so VAT must usually be accounted for.

Is there VAT on the supply?

If the goods or services you provide as perks are zero-rated, e.g. books, food, outside the scope of VAT or exempt, e.g. medical insurance, you don’t have to worry about VAT.
Where the perks aren’t zero-rated, exempt or outside the scope of VAT, you might have to account for VAT when you give them to your employees.
If you did not incur VAT on the purchases the VAT position is neutral.
Because the VAT position of perks is often neutral the rules allow you to more simply choose not to reclaim it, or account for it when you provide them as perks to your staff.
However, there are situations where the position isn’t neutral and you should definitely reclaim VAT.
For example, where the total cost of all perks you give an employee within a twelve-month period cost no more than £50 (excluding VAT), you can reclaim the VAT, but not account for any.

Perks for both employer and employee

Where a perk is a service, e.g. a gym or golf club membership, which is offered to all employees (even if some of them don’t take you up on the offer), by concession HMRC doesn’t require you to account for VAT, but allows you to reclaim any paid when you bought the membership etc.
However, the concession doesn’t apply to a service which you provide as a perk to only one or some of your employees.

Reference: Business Advice Directory