VAT on travel expenses: What should your company take into account?

Travel for business

When your staff travel and claim it back through expenses the first point to think about is whether this meets the business test or not.

So can you claim VAT on travel expenses for business purposes? The answer is quite straightforward: In the UK, while you can claim VAT on travel expenses that are incurred solely for business purposes (e.g., train fares, flight tickets, and hotel bookings), you cannot claim VAT on any personal expenses.

This includes where they are simply travelling to and from their normal place of work.

The exception is if there is an element of late-night working involved. Now there are conditions here;

• it has to be after 9 pm
• it has to happen irregularly
• it is not reasonable to expect the employee to use public transport
• Public transport has ceased

If the travel meets these requirements that it is not classed as private travel or a staff benefit and as such you can claim back the VAT.

Train, ferry & air travel

The vast majority of public transportation is zero-rated for VAT and so no tax has been paid and naturally, this can’t be claimed back.

The rule is that if the method of travel can carry ten passengers or more then it is zero-rated. This means that train, underground and ferry tickets should all be zero-rated.

There are some exceptions but it’s highly unlikely that staff are going to claim back air travel which in HMRC’s words is for “… the purpose of providing entertainment, recreation or amusement”.

Mileage claims

If your staff are using a company car and pay for fuel then you can only claim back the VAT where it meets the business test. This would typically be where a staff member drives a van for work but then leaves it at the company premises and travels home in their own vehicle.

If there is an element of private use, such as when the employee takes the van home, then you need to apportion the usage into private and business use and only claim VAT back on the business element.

Alternatively, you can claim all of the VAT back and then pay a VAT scale rate charge on the private use. You can find out more on the .gov website here.

Where employees claim payment for using their own cars on business then you can claim back VAT on the fuel element of the charge. You do need to be careful though because you cannot claim back VAT on the whole payment, just the fuel element.

We’ve written a more detailed article on mileage and VAT.

Keeping records

As with all things VAT, it is important to make sure your bookkeeping is up to scratch and that you keep excellent records.

Receipts are a must and these are helpful because they often give you an indication as to whether VAT was actually paid or not.

You don’t have to keep hard copy receipts, images on your expenses system are fine but you do need to be able to show that the expense was incurred and that VAT was paid.

For individual items under £25, there isn’t a requirement to keep receipts but you do need to be able to prove that VAT was paid so we’d suggest obtaining and keeping the document anyway.

Unlike most areas of VAT the rules around travel are quite straightforward so understanding them and then applying to your own situation shouldn’t be too difficult.

One thing we would suggest is that you keep an eye on HMRC publicity just to make sure that the rules don’t change and that you are totally up to date.

Looking for more advice on VAT on expenses? 

We've got many articles and three in-depth guides for you to use when mastering VAT on expenses.