VAT on staff travel
Posted on 19th June 2022
During routine records checks HMRC first looks for mistakes which businesses commonly make. One target area is the VAT treatment of travel expenses. What should you be checking to ensure your VAT returns are correct?
Passing on travel costs:
One error often made by businesses that provide professional services involves passing on their employees’ travel expenses to their customers. The following example illustrates the problem.
Example. Acom Ltd operates an advertising business and has clients all around the UK. Its standard terms state that its fees are based on time spent by its staff, plus expenses they incur if required to travel to meet the client.
When Acom sends a bill it itemises any rechargeable travel costs and sends receipts for these. It believes by doing so it can treat the expense as a VAT “disbursement”. HMRC’s practice is that disbursements are not part of the supply of services and therefore not subject to VAT. For example, if Acom’s bill included £150 (zero-rated) for rail fares it can simply include this as an item on the bill without adding VAT.
Trap. Acom is wrong. Several conditions must be met for an expense to be treated as a disbursement . At least one of these is not met in the circumstances described in our example. Therefore Acom should add VAT to the £150 travel cost recharged.
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Information correct at time of publication
This article was produced in June 2022 – please always check with Fuller Spurling that information is current, up to date and applicable to your situation.
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