Covid 19 – Can I claim back VAT? Under the current crisis, lots of companies are having to deal with the following:

• New bank loans
• Staff redundancies and retraining costs
• Homeworking
• Relocating office

What input VAT can companies reclaim in respect of the above?

General rule

The general rule is that to recover input VAT, the expense must always be for business purposes and there is no issue with exempt or non-business activities.

You must also obtain evidence such as a VAT invoice. However, HMRC does have the discretion to allow input VAT to be claimed without a tax invoice as long as there is alternative evidence to support VAT has been paid to a UK supplier and it is for business.

Another point sometimes missed is that the supplier must be supplying goods/services to the company and not by a third party. For example, say you own a restaurant and you are trying to obtain a loan for £100,000 to comply with social distancing rules. The bank has insisted that your company pays for a full survey on the property which will cost £2,500 plus VAT.

In this situation, the surveyor is working for the bank and the report must be generated for the bank in order to provide the loan. Therefore, even though your company pays the fees it is very unlikely you will be able to recover the input VAT. Why? Because the surveyor is acting under the instructions of the bank (3^rd party).

Loan arrangement fees and other costs

Arrangement fees and other costs are usually incurred when acquiring a loan. These generally do not include any VAT as they are likely to be VAT exempt and therefore there is no VAT to be recovered.

However, if the company incurs accountancy fees to produce, for example, a cash flow forecast can the input tax be recovered?

Maybe?

In Airtours Holiday Transport Ltd v HMRC the company bankers requested a review of their business operations. Professional fees were incurred by the company and they were not allowed to recover the input VAT. Why? This was because the supply of services was deemed to be for the bank rather than the company.

So it is important to look at the contract and obtain advice to see if you are able to recover the input VAT.

Retraining Costs

Some companies will be making redundancies and providing special training or advice to staff to help them find a placement with a new employer.

HMRC have indicated it is very likely input VAT can be claimed on these costs.

Homeworking costs

Many companies have asked their employees to work from home during this period. If the company buys a new laptop or office furniture for the employee then they should be able to recover the input VAT.

However, if the company was to redecorate the office area in the employee’s house it is unlikely input VAT could be claimed as it is linked to their private living accommodation.

Relocation costs

If an employee needs to be relocated because the company has moved to a new office they may incur costs such as estate agents fees, removal van fees etc. If the company helps the employee with these costs  then they should be able to recover the input VAT suffered.

With all of the above, it is important to look at the facts on each case and obtain advice to determine what input VAT can be obtained.

Further Reading:

HMRC -Check which expenses are taxable if your employee works from home due to coronavirus (COVID-19)