UK Small Businesses Failing To Claim Tax Back

by Jason Gorringe, Tax-News.com, London

05 April 2010

Accounting firm RSM Tenon has urged business owners in the UK to pay closer attention to their tax affairs, revealing that they could be missing out on thousands of pounds, as more than half of business owners fail to claim tax back on a retrospective basis.

The research cited by the firm suggests that many businesses will not take advantage of the recent opinion by the EU Advocate General (AG), expected to be upheld by the European Court of Justice, entitling UK firms to claim back VAT payments on entertainment expenses retrospectively for up to four years.

Other key findings of the RSM Tenon Business Barometer poll, for which more than 300 business owners throughout the UK were questioned at the end of January 2010, were that:

• 18% of those polled never revisit their tax returns once they are filed;
• 11% are unaware of the time limits relating to retrospective claims; and
• 10% of business owners are unaware they are able to make retrospective claims.

RSM Tenon further revealed that just 44% of business owners take advice on the elements they are able to claim back on a retrospective basis.

The firm went on to recommend that businesses review their position in light of the recent AG opinion on entertaining expenses as a matter of urgency. Furthermore, it argued, they should consider protecting their position by submitting claims or extending existing claims, up to and including four years from when the original claim is filed. Filing this protective claim could line businesses up for a windfall VAT rebate.

It explained that as things currently stand, a business cannot reclaim VAT on ‘business entertainment’ but can claim it back on ‘subsistence’. Entertainment is defined as any kind of free or subsidized entertainment or hospitality to non-employees. It is the opinion of AG that the definitions of ‘entertainment’ in VAT laws do not meet EU regulations.

Andrew Hubbard, Director of National Tax Policy at RSM Tenon concluded by advising that:

“Although it’s tempting not to think about a year once it has been put to bed and all returns have been made, it is worth revisiting when opportunities like this come along, especially in the current economic climate where cash flow is still tight. We are urging all businesses to dust off their old VAT returns and seek advice on whether they can potentially make a claim.”

“The opinion means that business owners could claim back the VAT on all corporate entertainment and failing to take advantage could leave businesses missing out on a sizeable VAT rebate.”

“Although it is good news for businesses, HMRC will be bracing itself for a deluge of retrospective tax claims. Businesses must take action – it is an excellent opportunity which has come at a time where they facing tighter regulations and higher tax payments.”

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