How to Reclaim VAT on Fines and Penalties

November 3, 2017

Blue sign reading VAT Refund

Ever been fined or given a penalty while undertaking a business task? You might be able to reclaim it on your tax returns! Find out how with our guide to getting VAT back on penalties.

We’ve all been there: slapped with a fine or penalty notice out of the blue. The most common of these is a car parking ticket, but there are plenty of other options available. Maybe you were fined by a third-party business for late payment on goods or services, for example. Fines are frustrating, especially for a small business owner trying to keep their company afloat in these turbulent, Brexit-ridden times.

You spend days working out how you can save on operating costs and help support the running of the company and ensure its survival. Then, you’re whacked with a hefty fine.

Unfortunately, fines and penalties will never be a complete tax-deductible business expense. However, the VAT on them can be.

How to Claim VAT on Penalties and Fines

Claiming VAT on a fine or penalty is easy. The costs are just tallied into your tax returns like any other expense. You only have to do two things:

  1. Keep a record of the fine or penalty
  2. Claim on an appropriate charge

What do we mean by “appropriate charge”? Well, you cannot claim VAT on every fine or penalty; only some. We’ll get into what you can’t claim on in a moment, but right now, let’s look at examples of what you can claim on:

  • You can claim on additional charges levied on top of an already agreed fee. So if you park your car and are then charged an additional fee for staying longer than planned, or you lose your ticket and must pay the maximum ticket value available for the car park, that is VAT deductible.

You can claim VAT on tax and penalties if they are levied by a private firm. Private firms giving you penalty notices will then record this fee as part of their income, which means — providing they earn above the threshold — they will be charging VAT on it.

What You Can’t Claim VAT on

All fines you attempt to claim must be done so when you were on business time. If you attempt to claim VAT back on a fine or penalty acquired while doing something relating to your personal life, such as shopping, you’ll be committing fraud. Activities must also be wholly for business purposes. So if you parked in a car park, went for a business lunch and then spent three hours in the cinema, you cannot claim the VAT back. But if you attended a meeting that ran over, you are entitled to claim that VAT back.

However, you can only reclaim VAT on fines and penalties if they are additional charges.

For example, you can’t:

  • Claim VAT back on a car park charge if it is levied as a separate fine due to a breach of terms and conditions. Breaking the rules of the parking space means the charge is not a business transaction and, therefore, VAT is not added.
  • Claim VAT back on charges levied by the government, such as delayed tax returns or speeding tickets.

Tax Accountants from Leeds Give Their Final Word

To make the process simple, consider this concept:

If the fine or penalty is designed to increase the income of the organisation that is fining you, usually if the fine comes from a private firm, you can claim VAT back as it is designated as profits in their tax return and, therefore, they must pay tax on it — including VAT.

If the fine or penalty is a statutory fine levied by a governing body, and not designed to be a designated profit maker, you cannot claim VAT back on it, because the organisation charging you do not pay VAT.

If you’re unsure about whether or not your fine or penalty is VAT tax deductible, get in touch with our chartered accountants now. We’ll be able to advise you on the best course of action.

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