Hi there,

I'm currently logging my expenses as per a previous post, paying myself from my business current account and logging any expenses under their relevant categories. How should I account for VAT? I'm on Flat Rate, so if I incur, say, £100 pounds of mileage expenses, should I log these at 15% VAT? I seem to remember from my days in a limited company that VAT on mileage wasn't all that straightforward. Equally, should I log other similar expenses (such as parking fees) the same way?

Thanks for your help!

Adam

Hi Adam,

For mileage expenses, only a portion of the mileage payment is deemed to be for fuel and therefore it's only this portion that attracts VAT. I think it's calculated using the engine size as described here:
http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm

E.g. for a 1.5L petrol car the fuel rate is 12p per mile and the VAT on this is therefore 1.8p per mile. (However I am not sure of this calculation - I recommend you call the VAT advice line on 0845 010 9000 to check).

When you enter the payment into Solar Accounts, you should enter two lines in the 'Allocate To' table - one with VAT at 0% another with VAT at 15%.

For most other expenses VAT applies to the whole amount - you should enter this as a single rate 15%.

Since you are on the Flat Rate Scheme the VAT rate you enter will not affect your VAT return (because you cannot reclaim VAT on purchases). However it will affect your 'Gain due to Flat Rate VAT' account (ie. your flat rate VAT profit).

I hope this makes sense - let me know if you need more information.

Thanks, Mark, I'll find out from the help-line. You lost me on the third paragraph, though. If I do 100 miles incurring VAT at 1.8p per mile, I would need to log VAT of £1.80. How do I do this if I'm logging 0% VAT?

Thanks again!

Adam

Hi Adam,

The zero rate is for the excess over the fuel amount. So if you're paying 40p per mile you will pay £40 for 100 miles - enter £13.80 at a VAT rate of 15% and £26.20 at a rate of 0%.

(Again please check these calculations with HMRC)

Cheers

Sorry about this, but I can't find any information on the HMRC site which breaks down the calculation in the way you suggest - what's your method, please?

Thanks again!

Adam

Hi Adam,

My calculation was:
Fuel component 12p per mile x 100 miles = £12.00
15% VAT on £12.00 = £1.8
Total fuel + VAT = £13.80

However I've just talked to HMRC and they say this is NOT the correct calculation. They said the fuel component includes VAT, so the VAT amount in this example would be £12.00 x 3 / 23 = £1.57

To record this in Solar Accounts enter an amount of £12 at 15% VAT and another at £28 at 0% VAT.

Cheers,

Hi Adam,

Yes the HMRC help line is a bit of a lottery - somtimes helpful, sometimes not.

Ok, so your business has paid £630.40 for 'motor expenses'. Of this, £173.36 was for fuel (at 15% VAT) and £457.04 was for wear-and-tear of the vehicle (at zero VAT).

To record this in Solar Accounts, create a new Money Paid Out transaction. The Amount Paid should be £630.40.

On the first 'Allocate to Account' line, enter:
Account = 'Motor Expenses', VAT = '15%', Amount £173.36
(Note: Solar Accounts will automatically calculate the VAT liability of £22.61)

On the second Allocate line, enter:
Account = 'Motor Expenses', VAT = '0%', Amount = £457.04
(You need to enter a second line so the total allocated matches the money paid out)

If you don't add the second line, you will get an error because Solar Accounts thinks, 'What was the remaining £457.04 for? Advertising? Rent?'

I hope this is a bit clearer! Let me know if you still have questions.

Brilliant, I've just done as you suggested and created two mileage expense accounts, one for 15% VAT and one for 0% VAT - it now makes perfect sense.

Thanks again for your fantastic, speedy response and great support!

Adam

Hi Adam,

No problem - glad to hear it's sorted now!