Many software packages have a “default
VAT rate” which can be set for each expense code. This can speed up the processing of invoices and payments considerably.
If the default rate is 20%, any payment coded to that account will extract VAT – e.g. post £120 and £100 will be the expense and £20 will be treated as VAT.
However, not all expenses to that code may be liable to VAT. Motor expenses is a classic example – whilst there may be VAT on petrol and repairs, there is no VAT on insurance, road tax etc. It cannot be emphasised enough that care is needed!
Some expenses have special rules too – e.g. leasing of vehicles – only 50% of the VAT on the lease can generally be reclaimed, but 100% of the service monthly fee can be reclaimed – where this is shown separately on the invoices.
There are certain utilities that can be run over all the accounting transactions which can help identify potential anomalies (although this is not entirely “foolproof”).
