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Applying a VAT recharge on expenses

by Michael Blaken

Published on 23rd June 2022

If your business is VAT registered it is essential that you correctly apply VAT on your expenses, but this is a complicated area that many people get wrong.

Let’s take travel expenses. Public transport – train, underground, bus etc – has no VAT included in the ticket, but it’s important to add this on when you are claiming an expense. If you are a consultant adding the cost of your £100 rail ticket to your invoice, you must add an additional 20% (£20) on top.

The same rules apply to expenses which already include VAT, but you need to ensure you are charging the standard 20%. For example, between 15 July 2021 to 30 September 2021 a 5% rate applied on catering and takeaway food; this increased to 12.5% from 1 October 2021 to 31 March 2022, before reverting to the standard rate. If your expense relates to this time period, then to ensure you apply the right level of VAT, you need to remove the VAT and then reapply the standard 20% rate.

The general rule to follow is that all expenses should follow the line of main supply. If the your time (or labour) is vatable everything else should be too.

For help and advice on VAT and tax accounting, get in touch with Optimum – accountants in Swindon and Cheltenham, working with business owners.

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