Homeworking: claiming input tax on subsistence expenses?

Input tax: basic rules

Input tax can only be claimed if you incur an expense that is for the purpose of your business; a business benefit is not sufficient. The expense must be incurred for a clear purpose. For example, a builder might argue that input tax should be claimable on their gym membership because it is important that they are physically fit to do their work. However, the purpose of the expenditure is to help their personal fitness, so input tax cannot be claimed.

The same rule applies to clothing you buy for your staff. Unless the clothing relates to a uniform, costume or overalls, input tax cannot be claimed, even if they must be well dressed to create a positive image for your business.

The argument that a garment qualifies as a uniform is strengthened by the inclusion of your logo or business name somewhere prominent.

Homeworking and rented space

HMRC’s view on homeworking is that if a specific room is allocated for business use, then input tax can be claimed on costs that specifically relate to that room, such as office furniture, and a reasonable apportionment should be carried out to claim some input tax on costs that relate to the whole property, e.g. electricity and gas bills. However, employees using a dining room table to carry out their work does not tick the business purpose test.

Many businesses supply serviced office accommodation to individuals for a fee, plus VAT, so that your employees can work in a quiet and productive atmosphere. If your business pays for these costs, you can claim input tax, subject to the normal rules.

If your employee pays the fees directly to the office provider, and reclaims them from your business on an expenses form, this is fine for input tax purposes, even if the office provider has issued the invoice to the employee rather than your business.

Refreshments

You must ensure that your staff who work in coffee shops and similar establishments are paid for specific expenses they incur and are not given a round-sum allowance for, say, a day or week of food and drink. You cannot claim input tax on round-sum allowances, even if they are used by your staff to buy goods and services that are subject to VAT. This is because no actual supply has been made to your business.

HMRC’s guidance on the rules for claiming input tax on subsistence expenses is clear: “If your business pays for meals for employees, then you can treat any VAT incurred as your input tax.” A meal includes both food and drink.

If you pay a proportion of the costs incurred by your staff, perhaps on a 50/50 split, you can treat your share of the payment as being inclusive of VAT, and claim input tax on this amount rather than the total invoice.