CORONAVIRUS - REMOTE WORKING - 07.07.2020

Reclaiming VAT on remote working allowance for staff

The coronavirus crisis has identified certain employees that can work from home in the long term. You have agreed to give them up to £1,000 to pay for equipment and other homeworking costs. Can you reclaim any input tax?

Basic rule

The starting point is to always remember the basic principle of any input tax claim: the expense must be incurred for the purpose of your business and also linked to your taxable activities. If an expense is linked to exempt, non-business or private use, it cannot be claimed. It is important to be clear about the difference between a business purpose and a business benefit.

Example. An accountant might justify claiming input tax on their golf club membership fee on the basis that the course and clubhouse brings them in a lot of business leads. But this is not correct, the purpose of the expenditure is because they enjoy playing golf.

The guidance regarding this basic rule, and the operation of VAT generally, is contained in VAT Notice 700 (see The next step ).

Tax invoice

You cannot just claim input tax on the full payment made to the employee, i.e. £1,000 x 1/6 as a maximum figure. With any input tax claim, you need to look at each supply of goods or services on a stand-alone basis, and then decide if the expense meets the necessary conditions. You will need a tax invoice to support each claim, i.e. to show that VAT has been paid to a registered supplier on the expense in question.

Tip. HMRC accepts that for expenses linked to employees, the invoices will often be addressed to the employee rather than your business. This is not a problem if the expense meets the business purpose test.

Ownership of goods

A lot of the allowance you pay to your employees will be used to buy goods for their new home office, e.g. office furniture, table lamp or even a new laptop. If your business owns these goods, rather than the employee, then you can claim input tax. But if the employee owns the goods, you cannot claim input tax because the supply has not been made to your business.

If you make a future charge to your employees for any private use of their computers or equipment, perhaps through a salary deduction, you will need to treat the payments as inclusive of VAT, i.e. output tax is 1/6 of the amount charged to the employee and not 20%.

Tip. HMRC would disregard any small amount of private use as being incidental to the business purpose of the expense.

Trap. If you own the goods and claim input tax, don’t forget that you will need to account for output tax if they are sold in the future.

Home improvement costs

You might agree that your employees can use some of their £1,000 payment to improve the décor and ambience of their office area, e.g. having it redecorated or fitted with a new carpet. Unfortunately, this spending would be classed as a private expense linked to the employee’s home and therefore no input tax can be claimed. It makes no difference if the decorator or carpet supplier invoices your business rather than the employee.

For a link to VAT Notice 700, visit http://tipsandadvice-vat.co.uk/download (VA 10.09.02).

Review each purchase invoice where VAT has been charged and consider if it meets the business purpose test needed to justify an input tax claim. You cannot claim on any services linked to the maintenance or improvement of the employee’s home, e.g. decorating work.


The next step


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