With all the business travel that has increased over the years, the employees are racking up levels of business expenses never seen before. Travel and Expenses, otherwise known as T & E, is the second largest outlay for business expenses after the costs of salaries and benefits. In fact, in 2017, money spent during business travel was $1.4 trillion and is expected to rise to $1.6 trillion by 2020. So taking back the business to business Value Added Tax or VAT on employee expenses is big business and could be a game-changing thing for your company’s final P/L. With that being said, even though the value of what can be reclaimed is enormous, just a tiny amount of business VAT is actually reclaimed. Approximately $20 billions of VAT was unclaimed in 2016.
Most countries employ a VAT system with varying BSB VAT rates and rules. What are some of the most common expenses?
- VAT imported on foreign purchases
- Service charges for vendors
- Employee accommodation and travel
- Goods purchased locally
If goods and services from foreign suppliers are purchased by your company or if your employees rack up entertainment and travel costs, you will need to handle business to business VAT. It’s going to take expertise and human resources on your company’s part to know what expenses you can claim and how much you can claim. In addition to whatever language barriers exist and ensuring that invoices/receipts are correct in the foreign language, you have to make sure all persons are on board on what monies are eligible for business VAT reclaim. Furthermore, the employees of your company need to understand the documentation required for it.
Knowledge is Needed in Business VAT Reclaim
For a VAT reclaim of a business nature to be correct and complaint, it needs top level global experience and expertise. In the Business Travel Guide to VAT you will find a full explanation of the skill required to handle VAT reclaims regarding business. With the tremendous value on a company’s business trip expenses, all of your employees must know what expenses can be claimed and what compliant documentation is required. What are costs that employees should look at for VAT refund claims, divided into three sections?
- Refundable – Reclaim of total amount of VAT paid.
- Partial – A particular percentage of VAT paid can be reclaimed.
- The Restrictions – Dependent on stipulated limits, this is the amount deducted.
- If an employee must stay in a UK or Denmark hotel, the entire amount of VAT is reclaimable. However, in Germany only seven percent of VAT on hotel expenses is claimable. Still another common cost with rules that vary is in restaurant meals. You can reclaim 100 percent of VAT on a restaurant meal. However in France, two reduced VAT rates exist at 5.5 percent and 10 percent, but it depends on the food and how it’s served.
If you want to know more about how this can impact a business, read this case study from VAT IT.
International VAT Planning
If you’re operating globally, there can be vast differences between countries in terms of VAT and taxation laws. For example, VAT in China (known as a Fapiao there) has a different rate to VAT in the UK.
But not just that – VAT legislation changes and you need to stay up to date with that.
Going back to our example of VAT in China, they recently lowered the rates of VAT – however, the decrease varied across different industries.
So you can see how complicated international VAT laws can get! And that’s why you should plan, research and prepare for dealing with these types of complexity.
Three Tips to Educate Your Employees to Improve Better Business VAT Return:
Your employees are at the head of the VAT process. It is your employees who are staying in hotels. So it is your employees who ask for and then submit invoices and receipts. And it is important to get things right from the start to ensure that employees know what is needed from them to reduce errors through the rest of the process. Here are the most common areas of employee education:
- Keep Your Invoices and Receipts
In our benchmarks, we can see that 48 percent of T & E invoices analyzed for VAT recovery are not correct. In fact, a whopping 30 percent of disqualified invoices are not even invoices. They are credit card slips or booking confirmations from a supplier. As much as 18 percent of invoices have mandatory details, like VAT breakdown, VAT ID numbers and company names, missing. Approximately 20 percent of all travel-related expense claims do not include an invoice or receipt for at least one item. Practically across the board, there needs to be evidence documented of travel and other expenses. Generally, you cannot claim a refund without a receipt for travel-related fuel bills. What is the best advice for employees? They need to hold on to all of their receipts and invoices.
- Make Sure Receipts are Compliant
From country to country the requirements for receipts and invoices vary. In Belgium, for example, you must have the company name on every invoice, and that includes even a meal from a fast food joint. In Spain, the company name is required on all invoices, plus there has to be the company VAT number. So to make sure the most significant compliance in documentation exists, employees need to provide their original receipts and invoices that include the company’s name and VAT number. Another best practice is to have all invoices include vendor details which would consist of the invoice number, date and VAT amount.
- Don’t Mix Business with Pleasure
Employees need to know that you only claim VAT on business trip expenses. With that said, business travel often includes personal expenses. Therefore, your employees need to keep their personal expenses separate from business expenses to avoid going against the business VAT reclaiming rules.