Business travel is on the rise, with employee travel expenses hitting all-time highs. Travel and Expenses (T&E) is not the second largest expense in many business’s books, right behind salaries and employee benefits. In 2017, businesses spent over $1.4 trillion on travel. Business travel is still expanding, with an estimated expenditure of $1.6 trillion in 2020. Value Added Taxes (VAT) can be reclaimed to cut your company’s expenses, which could make a dramatic difference in your company’s P/L statements. Even though reclaiming business VAT can be so important, very few businesses do it. It is estimated that over $20 billion of VAT went unclaimed in 2016. This VAT Guide can help your business save money.
Most countries use a VAT systems with different rates for business to business (B2B), then for tourism. A few of the common expenses including VAT for businesses are:
• Service charges by vendors.
• Travel and lodging costs for employees.
• Import VAT for purchases made abroad.
• The VAT on purchases of local good.
Learn more about reclaiming VAT on
VATIT. Does your company purchase goods and services from suppliers in other countries? Do your employees have travel and entertainment costs for business? If you answered yes to either question, your business is paying B2B VAT. It takes knowledge and time to understand what expenses you can claim and what percentage you can claim of the VAT your company pays. Your employees need to be trained to keep
invoices and receipts. They need to have an understanding of what VAT expenses can be reclaimed. They need to be taught how to document the expenses properly.
Knowledge Is the Key for Business VAT Reclaim
You need deep global knowledge and experience to reclaim the maximum of business VAT and remain compliant with tax laws. You can find more in-depth knowledge in the full Business Travel Guide To VAT, which helps businesses understand the intricacies of the VAT reclaiming process. Training should not be isolated to the accounting department. Your employees need to understand what expenses can be claimed and what documentation they need to provide. There are three main categories for VAT reclaims your employees need to know about, including:
• Refundable - The full amount of the VAT paid can be reclaimed.
• Partial - Your company can reclaim a percentage of the VAT paid.
• Restrictions Apply - The expenses must meet certain stipulations for the VAT to be reclaimed.
A couple of examples will help illustrate the point:
• The employee stays in hotels in the UK or Denmark - Full VAT reclaims.
• The employee stays in hotels in Germany - 7% VAT reclaim.
• Meals at restaurants in the UK - 100% VAT reclaim.
• Meals in France - 5.5% or 10% reclaim, based on the type of food and how it was served.
These examples show the complexity of figuring
VAT reclaims and the importance of employees keeping detailed records.
Three Tips to Educate Employees for a Better Business VAT Return
Your employees are the critical first step to reclaiming VAT. The employees are the ones who receive the receipts and invoices for their hotel stays and restaurant meals. It is important to get this step right. Educate your employees on what you need, and you will see fewer errors and be able to reclaim a higher percentage of your VAT expenses. Here are a few key areas your employees need to understand:
1. Keeping Invoices and Receipts
In our studies, 48% of Travel and Entertainment invoice for VAT recovery is not correct. 30% of the paperwork turned in was just a credit card receipt or booking confirmation. This is not adequate for a VAT reclaim. Another 18% of the invoices were missing important information. The invoice should include a VAT breakdown, the VAT ID number, and the name of the seller. 20% of travel expenses did not include a receipt for one or more items. There are some allowable exceptions, but as with travel-related fuel purchases, you cannot reclaim the VAT without the receipt. Employees need to be trained to keep all receipts and invoices.
2. Train Your Employees to Notice If Receipts Are Compliant
Every country has its own rules for what needs to be on a receipt. As an example, the company name must be on every receipt for business in Belgium. This includes receipts from fast food restaurants and the family-owned sidewalk cafés. Spain’s rules are even more stringent, requiring all receipts include the company name and the VAT number. Train your employees to double check to make sure the invoices and receipts include the company’s name and their VAT number. It is even better if the invoice includes an invoice number, the date, and a VAT breakdown.
3. Separate Business and Pleasure - At Least On the Invoice
Employees must understand that VAT can only be reclaimed on business expenses. Business travellers frequently take a little personal time and personal shopping. Employees must make their business and personal purchases separately, so only business expenses are shown on the receipt. This helps the company avoid complications with rules and regulations on reclaiming VAT expenses. Keeping accurate records, receipts, and invoices will help your company claim the maximum VAT refund.