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Reclaiming VAT on Expenses Paid by Employees – Ultimate Guide

Reclaiming VAT

If you’re an employer, you know that keeping taxes as low as possible is of utmost importance. That’s why it’s so important to reclaim VAT (value-added tax) on expenses paid by your employees. Running a business is no easy feat, and hundreds of expenses incur every month, so if employees pay them from their pocket for the time, and then you pay them back, how would you get a tax break on those expenses? They can be thousands of pounds. This is where this guide will help you. Let’s look at the expenses paid by employees that are VAT reclaimable.

Who are The Eligible Employees For VAT Reclaim

To reclaim the expenses of your employees, they have to be:

  • Someone employed directly by you
  • Managers, partners and directors
  • Helpers that assist in day-to-day events
  • If you pay self-employed people the same way you do your employees, then they’re also treated like your employees

Your company’s pensioners, shareholders, former employees or interviewees do not fall into this category.

What Type of Expenses Can You Reclaim for VAT?

The expenses should be necessary for the staff to complete their job. It should incur when the employee is performing his/her duty. It should be paid for by the employee. Though there are many expenses like this, some commonly occurring ones include:


You may even be able to reclaim all the tax on your vehicle for commercial use if it is only used for business purposes. You should have the proofs to show it’s not being used outside of business. For instance, it might be specific in your employee contract. 

Vehicles used to make money, such as; taxis, driving lesson cars, and self-drive hire vehicles, have higher chances of getting 100% VAT reclaim.

However, since the employee is not paying for the vehicle but the actual fuel it uses, so that’s what our main focus is for this blog post.

For fuel, you can reclaim VAT if you do not pay the employee a fixed rate under the Flat Rate Scheme.

Moreover, if the vehicle is used for personal and business purposes, you can only reclaim VAT on the fuel used for business trips. You will need to maintain a detailed mileage record for this.

You can also leverage fuel scale charges to find out how much VAT to pay on fuel if the vehicle is used for business as well as personal trips.

Furthermore, if the employee paid for any maintenance, repairs, off-street parking, or additional accessories for the car, you can also reclaim these expenses.


If your employee travels for business purposes, you can claim VAT on travel expenses. The travel must be done with the purpose of the business, and the travel expenses should be related to the business.

For example, if an employee travels to visit customers in another state, the trip is business related.

Travelling also includes money used to pay for accommodation, food and transport. Make sure to have proof of all transactions, like receipts.

Phone Charges:

If your employees use their mobile phones to make calls to clients for business purposes like providing 24/7 support, then you can also claim VAT on their phone charges. However, you need to ensure how much credit was used for calling employees and how much of it was for personal calls.

For instance, if 50% of phone calls were personal, then you can reclaim VAT only on half of them.

Type of Expenses That Cannot Be Reclaimed For Vat:

  • Expenses incurred for personal use items
  • Goods and services are paid for so the business can make VAT-exempt supplies
  • Expenses incurred for entertaining or providing hospitality to business associates like tickets to theatre
  • Purchasing items under one of the second-hand VAT margin schemes

What If The Goods Were Purchased Before Registration?

If your employees purchased goods or paid for other expenses before registering for VAT, you can still reclaim it un the following conditions:

  • If you bought those goods up to 6 months before registering for vat, as long as services are related to your business.
  • Or, if you still have that item or it is still being used to manufacture or facilitate other items in your business, you can reclaim VAT on it for up to 4 years before you registered for VAT.

Reclaiming VAT – Parting Words:

You can also reclaim VAT on items not mentioned here but purchased by employees for the sole benefit of your business and are a part of their job. Just make sure to keep receipts for every purchase to provide proof to the HMRC.