Exchequer Weblog

You must have a valid VAT invoice in order to reclaim VAT charged on the goods or services you purchase. When dealing with a new supplier check that their invoice includes all of the following details:

• The suppliers name, address and VAT registration number
• The name and address of the person to whom the goods are supplied (this will be your business)
• A unique identification number (see below for new rules)
• Date of issue
• Time of supply of the goods or services (this may be the same as the date of issue)
• A description of the goods or services supplied
• For each description of goods or services:
     -The unit price (see below for exceptions)
     -The rate of VAT charged
     -The amount payable excluding VAT
• The total amount payable for the whole invoice excluding VAT
• Rate of any discount available
• Total amount of VAT charged

VAT invoices must generally be in pounds sterling, but where you have received an invoice expressed in a foreign currency, as long as the sterling equivalent is shown for the total payable and the total VAT due, the invoice will be a valid VAT invoice. The wording on the invoice does not have to be in English, but if you get a VAT inspection you will have to produce a translation of the invoice into English if the VAT officer asks for one.

There are two relatively recent changes to the VAT invoice rules you should check for your own business:

• Unit price
  Since 2004 a VAT invoice must include the unit price of any ‘countable’ goods or services. So if you charge by the hour you need to show your hourly rate. However, if it is not the usual practice in your business sector to show this information you don’t have to, as long as your customer doesn’t demand it.
• Unique identification number
  From October 2007 each of your VAT invoices must have a unique and sequential number. If you restart your invoice numbering each year this could lead to identically numbered invoices in different years. You can use separate invoice sequences for different customers as long as each sequence of invoices is separate and unique. You can also use customer prefixes on the invoices, as long as no two customers have the same prefix.

Free or subsidised meals provided to staff in a works canteen are tax and NI free as long as the meals are available to all staff. The company does not necessarily have to have its own canteen, but the food must normally be provided on the business premises. The local pub cannot be designated as a staff canteen just for Friday lunchtime. If some company sites have a canteen but others do not, the subsidised food will still be tax-free as long as any employee can eat in the canteen if they happen to be on site.

Sandwiches, drinks and tea and coffee are all covered by this tax exemption if the refreshments provided are on a reasonable scale. For instance free fruit and snacks would be reasonable, but free champagne would not.

Working lunches for staff or directors are not a taxable benefit as long as the employees who are not involved also have the right to free food generally. It does not matter that the directors’ food is not exactly the same as the staff canteen grub, as long as it is comparable. The Taxman would take a dim view of directors sitting down to a three-course meal with champagne and cigars while the staff have tinned soup and rolls.

Example
All professional staff are required to attend monthly lunch-time training sessions where free sandwiches are provided. The company’s support staff do not attend the training meetings. If the company provides free sandwiches for all the staff including the support workers, the free food is not a taxable benefit. If the professional staff eat all the sandwiches and leave nothing for the admin department a tax charge will arise.

In addition, when your employees are temporarily away from their normal base the employer can reimburse the cost of a reasonable meal without incurring further tax or NI liabilities.
Where food is provided to staff in any of the above circumstances the cost is tax allowable for the employer and any VAT charged on prepared food, such as sandwiches can be reclaimed. What you must avoid is any element of entertaining being wrapped up with the provision of the food. Meals provided to customers or potential customers will almost always be classed as entertaining, so the cost cannot be deducted for tax purposes, and the VAT cannot be recovered.

As a small business you may face a dilemma; you are forced to limit the scale of your operations because you cannot get loan capital, but the bank will not provide further funds as you have no significant assets to provide as security. The Small Firms Loan Guarantee Scheme could provide a partial solution.

The Government department: BERR (former DTI) will guarantee 75% of a loan made available from one of 29 high street banks, regional development agencies and finance companies. You as the borrower have to pay a premium of 2% of the outstanding capital per year. The lender is not permitted to ask for a personal guarantee against this Government backed loan but it will ask you to pledge some of your business assets such as stock or equipment. The amount of the loan can be anything from £5,000 to £100,000. But if your business has been established for at least two years you can borrow up to £250,000 under this scheme. However, in all cases the period of the loan cannot exceed ten years.

Most businesses with a turnover of up to £3 million, (or £5 million for manufacturers), can qualify for the loan guarantee. Some industry sectors are excluded but service providers such as caterers, estate agents, hairdressers and retailers can now apply. However, if your business employs more than 200 people you will not be eligible for the loan guarantee, as the scheme is aimed specifically at small businesses. You do not have to have a long business history to be considered for the scheme but you will be asked to provide a business plan.