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The complete guide on reclaiming VAT on staff expenses

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Reclaim VAT on alcohol

For many goods and services, a VAT rate is added to the value and charged to the consumer. In the case of reclaiming VAT on alcohol, there are occasions where this is possible and when it’s not. 

Understanding the differences can help ensure that you aren’t penalized by HMRC in the United Kingdom or the governing body responsible for VAT and other taxes in your country.

What’s the VAT on alcohol?

Alcohol duties like the standard duty of VAT is 20%. This VAT is included in the price you pay for alcohol, including wine, beer, cider or perry, and spirits. 

It’s important to know this rate when it comes to VAT and other taxes to know how much the product itself costs and what you can claim back. This article will ensure you don’t lose any money spent on alcohol when doing your VAT return at the end of the tax year.

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Claiming VAT on alcohol as a business expense

You can reclaim VAT on a “reasonable” amount of alcoholic drinks. Admittedly, “reasonable” is a pretty vague term; what one might deem reasonable might not be reasonable to someone else. It has to be with a meal and not as entertainment. 

First thing’s first, if you intend to reclaim VAT on alcohol, you’ll need to practice asking for a VAT receipt with your purchases—and hold on to them.

To claim any VAT, including alcohol, it’s important to have a good bookkeeping system in place where you look after all of your receipts. 

Although there is usually a flat rate for tax, during the pandemic, some VAT tax was reduced to 5%. This percentage can always go up or down, so try to keep an eye on it. By doing so, you’ll be able to adjust your tax returns accordingly and will have a better idea of the amount of money you’ll get back.

If you’re ever unsure, look at getting some professional advice to know exactly what value-added tax you can reclaim when it comes to alcoholic beverages.

Scenarios to reclaim and not to reclaim on alcohol

Businesses can claim this input tax when it comes to their expenditure. However, it’s important first to be VAT-registered and to know that your business is not—in any way—partly exempt. 

There’s also a tax block that applies to entertainment expenses, so to understand what’s allowed and what isn’t, here are some examples.

  • If you were taking out a client for dinner, you would only be able to claim VAT on your own alcohol and not that of your clients.
  • Christmas parties are a ‘reward’ for staff when it comes to business purposes. Therefore, you can reclaim VAT on alcohol for this occasion as they count as business gifts.  
  • Client dinners with more than one employee will need to be assessed on whether that other employee was playing host or not. If that employee is simply there on a business trip and not entertaining the client, VAT can’t be deductible from their meal.

It can get tricky when it comes to business entertaining and knowing exactly what can and cannot be allowed with alcohol consumption. HMRC has plenty of detailed information for taxpayers. If you have any queries and are doing this process yourself, it’s not a bad idea to get in touch with them directly.

How to reclaim VAT on alcohol drinks

Reclaiming input VAT on alcoholic drinks is something most employees and therefore businesses can do, within reason. Here’s a quick step-by-step guide on how to reclaim on alcohol. 

1. Ask for a VAT receipt

Many businesses that you buy alcoholic drinks from should be able to print a VAT receipt if you request one. This is not something they have to do, so make sure you ask. A VAT is not your card receipt. 

2. File your alcohol taxes at the end of the financial year 

Easier said than done. Filing your taxes at the end of the financial year is a process. If you haven’t been efficient throughout the 12 month period, you’ll certainly feel the pain of this process even more at the end of it when you’re scrambling for receipts and trying to remember what’s what. 

Many small businesses usually outsource a finance accountant or use a SaaS tool to make this entire VAT recovery process run smoother. Keep an eye on the deadline to file your taxes, there are mitigating circumstances that you’ll be able to get an extension, for example Brexit and the coronavirus pandemic saw a major increase in granted extensions, but it’s best to practice being on time. 

3. Keep receipts on file; for up to four years

It’s essential that you file and store all of your VAT receipts. Ideally, you want to hold onto your receipts for the last four years due to HMRC randomly checking your amount of VAT claims and you’ll need those receipts as evidence. However, when it comes to reclaiming, you’ll only need and be able to use receipts from the last tax year. 

Wrapping it up

From travel expenses to staff gift vouchers, reclaiming VAT on anything can be a bit of a gruesome process if you’re not prepared. However, it’s something worth doing and can save your business a lot of money in the long run.  Find those taxable supplies, like alcohol, and grant yourself a VAT refund and tax relief at the end of the financial year to keep your business thriving.

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