Your guide to VAT on travel

Online conference calls don’t always cut it, and sometimes, businesses need to expense travel costs to meet clients or to make sure projects are delivered on time. Find out how you can claim VAT back on your travel costs in this article.

We’ll summarise the essential information you’ll need to successfully make a VAT claim from your travel costs and answer key questions, including:

• What can I claim VAT on?
• Can I reclaim VAT on all types of travel?
• What if I use flat-rate expenses?
• Can I always claim 20% back?
• How to reclaim VAT in 3 steps
• How to simplify your VAT expenses with Countingup

Growing a successful business on the go means identifying ways you can save time and effort to focus on what matters. Learn how you can simplify your VAT expenses with Countingup below.

Businesses can reclaim VAT costs from the goods and services they purchase for business purposes, including things like travel costs. For this reason, only VAT claims on travel that’s related to your business are allowed. HMRC may audit your business 

For example, if you need to provide a quote on a client project and have travelled to their home or offices to do so, your business is typically able to claim costs like VAT on travel back. Similarly, if you travel to attend a trade show or meet with potential investors or lenders, you can reclaim any VAT you’ve paid. Additionally, if you expand your business to a new location and need to travel in order to establish it, HMRC allows expense claims to be made for the first 24 months. 

However, if you travel to the same office or manufacturing location regularly, this type of travel can’t be claimed back as it’s part of your normal commute. Moreover, if you exceed this 24-month threshold, you may lose your ability to claim the VAT back. This is because HMRC allows business travel for limited durations or for temporary purposes. If you’d like to learn more about the policy HMRC has for travel expenses, you can read our article What is the HMRC 24-month rule for expenses?

Yes, businesses can claim expenses on all types of travel, including any VAT rates that have been applied. However, if you choose to travel by car, expenses are handled differently. This means that if you travel by plane, train or bus, you can claim the ticket cost and other associated fees. 

However, if you drive your own car, you can claim VAT in three different ways. In general, it’s simpler to file your car expenses under the Flat Rate VAT scheme (see below) as it includes VAT expenses on other vehicle costs like MOT and usage. If you’d like to learn more about how to handle your VAT costs, use the links provided above or speak with your accountant.

If your business has signed up for the Flat Rate VAT scheme, your VAT returns will be handled slightly differently.

The Flat Rate VAT scheme aims at helping businesses simplify their VAT payments to HMRC, by allowing them to keep the difference between the fixed VAT rate paid to HMRC and what they’ve charged to customers. However, the scheme places a minimum value on expenses you can claim VAT on. 

Businesses are only able to reclaim the amount of VAT applied to the goods and services they’ve been charged for. This means that you can’t claim a consistent 20% across all the goods you’ve purchased – only the amount of VAT applied to each of them.

For example, most travel costs are charged at the standard 20% rate. However, if you happen to buy food while you’ve travelled, most items are exempt. If you don’t use the Flat Rate VAT scheme for your vehicle, VAT claims on fuel are calculated using the fuel scale charge. You can work out how much your vehicle is eligible to claim on VAT costs using HMRC’s online tool.

Reclaiming VAT costs works similarly to other expenses your business has, however, there is an additional step you’ll need to take – namely registering for VAT in the first place. We discuss the process for how you can reclaim your VAT below in three simple steps.

In order to be eligible to reclaim VAT, your business needs to be VAT registered also. Businesses can register for VAT with HMRC using the online portal. This process will create a VAT online account (sometimes referred to as a ‘Government Gateway account’) which you can use to submit your VAT returns each year.

Businesses need to register if their VAT-taxable turnover is over £85,000. This means that if your turnover is less than this amount, you may not need to register. However, if you know your turnover will pass this threshold in the next 30 days, or if your turnover from the last 12 months has already passed it, HMRC requires you to register for VAT. If you’d like more information on whether you need to register for VAT, read our article When do you pay VAT?

Note that, some businesses may have to register by post using the VAT1 form. For example, if you’re applying for a registration exception (if you sell goods completely exempt from VAT charges) or are joining the Agricultural Flat Rate Scheme (if your business is in agriculture, you may be eligible for a flat tax rate). Similarly, if you import goods to Northern Ireland worth more than £85,000 from an EU country (like the Republic of Ireland), you should register for VAT by post using VAT1B.

Regardless of which method you use to register, you’ll need to provide details about your business to HMRC during the process. These will include your business’ turnover, bank details, what it does to make a profit. 

This information helps HMRC understand if your future VAT returns are correct (as you may exclude certain items from your VAT calculations across the year). If you haven’t already, it may be useful to have a dedicated bank account for your business as it can help your VAT calculations be more accurate and transparent.

If you sell goods across the UK to Northern Ireland, you may have to provide additional details to HMRC. In these cases, you need to tell HMRC if any of the following apply:

• Your goods are in Northern Ireland at the time of sale
• You receive goods in Northern Ireland from VAT-registered EU businesses for any business purposes
• You sell or transport goods from Northern Ireland to an EU country

This is to help your business use simplified VAT rates when trading with EU customers or businesses. For more information on the registration process, read our article How to register for VAT.

Businesses are required to keep records of their sales and expenses in order to calculate their taxes accurately, and VAT is no different. 

Once you’ve registered, you’ll need to correctly apply VAT rates across your goods and services, and keep receipts of expenses where you’ve been charged VAT in order to claim it back. Without this accurate record, you may over-pay on your VAT return to HMRC.

Even if you have an organised and thorough system of recordkeeping, it still takes a significant amount of time to maintain across the financial year. Learn about how you can ease this burden below.

VAT returns are typically due every three months. VAT returns can be completed online or using integrated accounting software like Countingup if you’ve signed up for Making Tax Digital for VAT.

The specific steps for completing your VAT return will vary depending on which scheme you’re on. For example, whether you’re a part of the Flat Rate, Retail, Agricultural Rate, or any other VAT schemes. Similarly, VAT returns for businesses registered in Northern Ireland need to include an EC sales list as part of their submission.

HMRC has guidance published for how to file and submit your VAT return available here. 

HMRC accepts several different payment methods in order to help businesses pay their required VAT amounts easily. These include: 

• Online and in-person money transfers from banks or building societies
• Direct debits and standing orders
• Debit or corporate credit card payments

You’ll need to have crucial pieces of information ready, including your VAT registration number (which you would have received when you first registered) and the correct VAT sum.

Depending on the method you use, it could take up to six weeks to successfully complete the entire payment process – which is why it’s vital to plan ahead and be prepared. If you’d like more information on how to pay HMRC and what happens if you’re late, read our articles How to pay VAT to HMRC and What happens if you don’t pay VAT on time?

Tracking VAT rates across your business’ accounts can be a time-consuming and frustrating chore that distracts you from building your business. You can use the Countingup app to save time and stress on your financial admin. 

Countingup is the business current account and accounting software in one app and provides a digital tax filing service to small businesses. With it, you can automate VAT calculations associated with each of your business transactions and make paying your VAT bill easier. If you’re new to the world of business, Countingup also makes it easier to share your business’ finances and VAT records with your accountant. With the touch of a button, you can send your transaction data for review so you can make sure you’re always compliant.

The Countingup app also offers essential business tools to save you time, including automated invoicing features and a receipt capture tool that can log expense and VAT data even while on the go. Best of all, Countingup offers you real-time profit and loss statements so you can make sure your insight is always up to date and accurate.

Make logging your VAT costs while travelling easier and more straightforward. Find out more about Countingup here and sign up for free today.