Including T&E in a Domestic VAT Return: Issues and Risks – How to Ensure Compliance
Do you recover VAT that you pay on your business’ travel and entertainment (T&E) expenses in your home country? The chances are good that your employees will rack up a bigger potential VAT refund on T&E expenses at home than they will abroad. Consider costs like transport to and from meetings, tolls and fuel, parking fees, meals with clients, etc. These business expenses really mount up, and VAT piles up with them. With VAT rates at 20% and up in some countries, domestic VAT reclaim is nothing to sneeze at.
Submitting a domestic VAT return seems fairly easy, in comparison to foreign VAT reclaim. All your VAT receipts are in a single language and currency, and the online forms are short and simple. But requesting a domestic VAT refund brings its own challenges.
You Might be Hesitant to Include T&E Since Invoices Take Time to Process
Although there are many of them, most of your employees’ domestic T&E purchases are likely to be for low amounts, especially compared to the other invoices you handle every day. It’s tempting for businesses to just ignore all these small invoices because it takes time and energy to read and record each (seemingly insignificant) amount. However, all these small VAT payments add up to several billions of pounds of unclaimed VAT each year.
The High Risk of Fraud
A far more serious challenge when processing a domestic VAT return is ensuring that the final amount your business submits for a VAT refund is fully accurate. Most companies calculate the total domestic VAT using automated entries from their expense management software, which, more than likely, are inaccurate.
When it comes to VAT reclaim, there are no second chances. If your business submits the wrong amount for VAT reclaim, the business can be accused of fraudulent activity and have to endure an expensive, exhausting audit and potentially high fines, even if the business arrived at this number in good faith, without intending to commit fraud.
Why your Domestic VAT Return is Probably Incorrect
The reason you’re likely to end up with the wrong amount of VAT if you use your expense management software is because your employees enter their own expenses into that system, and they aren’t fully informed about the rules and regulations surrounding VAT reclaim. They don’t know exactly which types of goods and services can be submitted for a VAT refund, or what makes any invoice into a valid and submittable VAT invoice.
For example, if you use expense management software, your employees fill in fields like “What is the vendor’s VAT number?” and “Do you have a valid tax invoice?” They don’t know the significance of making an error in any of these fields; they just want to submit their expenses and get reimbursed. They aren’t taking care to avoid uploading an invoice twice, or to ensure that the correct company name is written legibly on the invoice. You can’t rely on this information to keep you compliant with the relevant VAT authority .
In order for your VAT refund request to be accepted, it has to be entirely accurate. Any discrepancy between the amount of VAT entered on your VAT return and the amount that was actually paid will be considered fraudulent. But when your employees enter their mileage for a business meeting, they typically round up the distance to .0 or .5 miles. No big deal, right? Wrong. That would be flagged as a potential issue as how can every journey begin and end on a 5 or zero? This often leads to further investigation of your policies and processes.
Parking costs are another area where mistakes are often made. For example, there are two types of paid parking in the UK: private off-street parking, which charges VAT, and on-street parking, which does not include VAT. Very few people realise the difference. Unless your employees remember which type of parking fee they paid, there’s a risk that you’ll end up requesting a VAT refund for on-street parking that didn’t include VAT.
The Solution: Automated VAT Reclaim Software
The only way to be sure that your employees’ domestic VAT expenses are accurate is to review each and every VAT invoice. And that brings us back to the first issue; most VAT invoices are for small amounts, and reviewing them is both time-consuming and exhausting.
That’s why you need an automated VAT recovery system like Way2VAT. Way2VAT doesn’t get frustrated about checking one VAT receipt after another, or decide to skip this invoice because the amount is so small or that one because it’s torn. It picks up on every discrepancy, no matter how slight, reduces human error that can easily creep in to manual data entry, and frees up HR and accounting time for other tasks. What’s more, automated VAT systems are immediately updated whenever there is a change in VAT laws and regulations, helping keep your business compliant no matter what.
For all the details about filing successful domestic VAT returns in the EU and other countries around the world, download our eBook.