November Q&A
Is there VAT on gift to top salesperson?
Q. You operate a car dealership business and have given a case of champagne to your best performing salesperson. Can you claim input tax on the cost of the champagne because each individual bottle cost you less than £50. Is this correct?
A. Unfortunately, your interpretation of the law is incorrect. Firstly, you can claim input tax on the purchase of the champagne because it is an expense that relates to your business; the purpose of the expense is to reward an employee who has performed exceptionally well. This assumes that you have a tax invoice and the supplier is registered for VAT.
However, the legislation states that if the value of a business gift given to an individual person exceeds £50 in any rolling twelve-month period, you must account for output tax on the value of the gift, i.e., based on what you paid for it. This VAT is declared on the return that includes the date when you give the champagne to your employee. The value of the gift is clearly more than £50.
Can a horsebox with business logo qualify as a business expense?
Q. Sally is a jockey and her father Tom has agreed to buy a new horsebox to support her progress. If Tom buys the horsebox from his company that is VAT registered, can he claim input tax if he advertises the company’s website address, business logo and contact details on the side of it?
A. There is no problem claiming input tax on an expense that is intended to advertise or promote your business, for example leading to increased sales and profits in the future, and more VAT paid to HMRC on your quarterly returns.
However, the problem here for Tom is that the purpose of the horsebox expense is to support Sally with her personal interest in horse riding, i.e. it is a non-business expense. To reclaim input tax, the purpose of an expense must be directly linked to your business. If an expense has a part-business purpose, you can claim a percentage of the VAT as input tax, using any method that is fair and reasonable. A reasonable VAT claim in this situation would probably be a maximum of 10% of the total expenditure.
Do previous late VAT payments still count with the new penalty system?
Q. A business has suffered cash-flow problems in the last two years and has often paid VAT returns late, incurring default surcharge penalties of 10% in some periods. The business will not be able to fully pay the tax due on its next return on time. Will its past record mean a higher penalty?
A. The new penalty regime took effect for late payments on VAT returns for periods beginning on or after 1 January 2023. The good news is that a payment record with the previous default surcharge regime is irrelevant; the slate is effectively wiped clean.
If you cannot fully pay your VAT bill on time, the best advice is to pay as much as possible by the due date and then ask HMRC’s Payment Support Service for a time-to-pay arrangement for the balance. You must agree a plan before the due payment date of the return, for example by 7 October 2023 in the case of an August 2023 return. Alternatively, if you do not agree a deal, you will avoid a 2% penalty on the unpaid tax if you fully pay what you owe within 30 days of the payment date, i.e. by 6 November 2023 in the case of the August 2023 return.
Is it better to lease or buy business cars?
Q. Your business has always purchased new cars for the sales team. However, you understand there is a VAT advantage in leasing rather than buying vehicles. Is this correct?
A. If you buy a car and are charged VAT by the seller, you can only claim input tax in two main circumstances. Firstly, where you use the vehicle as a tool of trade, for example you trade as a driving school or taxi firm. Secondly, where it is a genuine pool car that is available for general business use and is not kept overnight at the home of either business owners or employees.
However, if you lease a car (not including hire purchase agreements) then you will be charged VAT on your monthly leasing payments and can claim 50% input tax. This is a fixed percentage specified by law and does not depend on how much business/private travel is carried out in the vehicle. It is worth considering this option for your future purchases but you should also consider the impact of other taxes.
