No employee likes paperwork and they dislike creating documentation for VAT on travel and expenses even more. With so many variable rates to keep in mind and missing information, VAT reclaim can easily transform into a nightmare for your company, one that will cost you a lot in unclaimed money. Fortunately, technology makes everything easier, also when it comes to ensuring that VAT is properly reclaimed on travel expenses.
Value Added Tax or VAT is a general sales tax and an indirect tax imposed on the consumption of goods and services, which is paid by the end consumer.
As VAT is not a charge on businesses, if your company is VAT registered then you have the right to deduct the amount of tax you have paid to other businesses on purchases for your corporate activities from the VAT you collected.
For example, countries in the EU use VAT to avoid multi-stage taxes that would be "levied on the actual value of output at each stage of the productive process, making it impossible to determine the real amount of tax actually included in the final price of a particular product", as is explained on the European Commission's official website.
Travel expenses are the type of cost that are associated with business travelling, but can you reclaim VAT for all types of travel expenses? You should know that expenses eligible for reclaim vary from country to country, but there are some types that are refunded in most countries:
For many companies, travel expenses are one of the biggest business costs and VAT can increase these costs by up to 27% when it is not reclaimed. If corporate travel expenses are a significant items in your company’s budget, VAT reclaim should be one of your top priorities when aiming to reduce travel costs.
As you may have noticed, VAT rates vary across countries and may vary from one type of product or service to another. This makes VAT documentation and reclaim a challenge for most companies and involves a lot of effort from your team. However, VAT for travel and expense reclaim is an important source of savings for your business and should never be overlooked.
Just think about VAT reclaim as one of the most controllable travel expenses. Did you know that each year, a billion of euros remain unclaimed as companies fail to submit accurate and complete documentation? Your company probably reimburses travelling employees regularly, but if you are unable to reclaim the VAT on travel expenses, it will certainly affect your bottom line. It might take some time to receive a VAT refund, but your team’s efforts will not be in vain.
Source: https://www.pwc.com/payingtaxes
To reclaim VAT on travel and expenses, you must ensure that the documentation is complete and accurate. This means that you should offer your employees some guidelines and encourage them to follow instructions precisely.
Make sure your employees provide you with the original invoice, no matter if it is in physical or digital format, and inform them about the correct term for "invoice" in the local language.
Click to tweetWhen VAT is not included on the invoice, your employees will have to request it explicitly.
Click to tweetThe legal entity name and official address of the product or service provider and of your company must be correct and displayed in the invoice.
Click to tweetThe invoice number and date must be included, and ensure that you have all the vendor details you need for complete documentation.
Click to tweetYou might consider including the tips above in your travel expense policy in order to increase compliance when it comes to eligible reimbursement claims and eligible VAT reclaims.
If your company is VAT registered, keeping accurate and complete documentation for VAT reclaim is not easy at all, especially when it is done manually or with softwares that do not provide you with the required information.
Also, gathering and keeping paper invoices can quickly become a nightmare for your team. Which is why you should opt for a mobile application that allows your travellers to scan receipts and submit them in real time. There are mobile solutions that capture the exact data you need for your reports and documentation and that are integrated seamlessly with your T&E management software.
