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Business to Business VAT: A Guide for Employees

Business to Business VAT: A Guide for Employees

Businesses are traveling more than ever before and employees are clocking up record levels of business expenses. In fact, Travel and Expenses (T & E) represents the second largest outlay of any business after salaries and benefits. In 2017 alone, business travel spending was worth $1.4 trillion, and expected to grow to $1.6 trillion by 2020. Reclaiming the business to business VAT (Value Added Tax) on your employees’ expenses is therefore big business, and potentially a game changing amount when it comes to your company’s final P/L. However, despite the huge value of what can be reclaimed, only a small portion of business VAT is actually reclaimed. VAT worth an estimated $20 billion remained unclaimed in 2016.

Most countries employ some sort of VAT system with differing B2B VAT rates and rules. Some of the most common expenses incurring business VAT include:

  • Import VAT on foreign purchases
  • Vendor services charges
  • Employee travel and accommodation
  • Local purchase of goods.

If your company purchases goods and services from foreign suppliers or your employees incur travel and entertainment costs, you have to deal with business to business VAT. Knowing what expenses you can claim and how much you can claim requires expertise and manpower. As well as the obvious language barrier and having to ensure any invoices/receipts are correct in a foreign language, you need to ensure that everybody is on board on what expenses are eligible for business VAT reclaim. Moreover, your employees need to understand the documentation needed for it.

The Need for Knowledge in Business VAT Reclaim

A correct and compliant business VAT reclaim requires a high level of global expertise and experience. There’s a full Business Travel Guide to VAT which provides a bigger picture of the expertise needed to manage business VAT reclaims. With such a huge value placed on a company’s business trip expenses, your employees need to know exactly what expenses can be claimed for and the required compliant documentation needed. Expenses that employees should consider for VAT refund claims can be then be divided into three categories:

  1. Refundable – This is where the full amount of the VAT paid is reclaimable.
  2. Partial – A certain percentage of the VAT paid can be reclaimed
  3. Restrictions Apply – The amount deducted is dependent upon stipulated restrictions.

Should an employee need to stay in a hotel in the UK or Denmark, the full amount of the VAT is reclaimable but in Germany, only 7% of VAT paid on a hotel expense is reclaimable. Another very common expense with varying rules is in restaurant meals. In the UK, 100% of VAT is reclaimable on a restaurant meal, but in France, there are two reduced VAT rates, 5.5% and 10%, depending in exactly what the food is and how it is served.

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Three Tips to Educate Employees for a Better Business VAT Return

Employees are at the front end of the VAT process. They are the ones staying in hotels and they are the ones that ask for, and submit, invoices and receipts. As with most processes, getting things right at the start and ensuring that employees understand what is needed from them can result in fewer errors throughout the rest of the process. The most common areas of employee education are explained in the following paragraphs.

1. Retain Your Invoices and Receipts

Our benchmarks show that 48% of the T&E invoices, that were analyzed for VAT recovery, are incorrect. A staggering 30% of the disqualified invoices are not invoices, but just a credit card slip or a booking confirmation from a supplier. 18% of invoices have missing mandatory details like the VAT breakdown, VAT ID# or the company name. An estimated 20% of all travel-related expense claims fail to include a receipt or invoice for at least one item. Almost across the board, there has to be documented evidence of the travel and other expenses. There are provisions, but certainly with any travel-related fuel bills, a refund cannot be claimed without a receipt. The best advice to give to employees? Hold on to all your receipts and invoices.

2. Ensure the Receipts are Compliant

Receipts and invoices and the necessary requirements vary from country to country. In Belgium, the company name is legally required on every invoice, even a meal from a fast food outlet. Meanwhile in Spain, not only is the company name required on invoices, but also the company VAT number. To ensure the best possible compliance in documentation, make sure that employees provide original invoices and receipts with the company’s name and VAT number included. It is also best practice for the invoice to contain vendor details including invoice number, invoice date and VAT amount.

3. Don’t Mix Business With Pleasure

It is important that employees know that VAT is only claimed on business trip expenses. Business travel will often occur personal expenses. Employees must keep their personal expenses separate from their business expenses as you do not want your company running the risk of infringing on the varied rules of business VAT reclaim.

Education is Only Part of the Process

Even with all the best education of employees, it remains just part of the VAT reclaim process. Humans make the mistakes, and without VAT management software in place, you are leaving your company’s business VAT reclaim at the mercy of error-prone human hands. There is also the problem of ever-changing regulation that will need to be updated and adhered to in every country. You can have employees educated on what documentation to collect, but that is useless if there is no process in place to keep up-to-date global compliance. VATBox offers the solution to ensure that all VAT regulation, across any border, is adhered to. Providing the back end to the VAT process, the technology used gives a cost-effective approach to VAT management, which coupled with good employee education, ensures your business is maximizing its business VAT reclaim. Request a free demo here.

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