VAT on school fees - reclaiming

Hi If a VAT reg'd limited company under FRS105 pays private school fees via their limited company, are they able to reclaim the VAT in full or are there restrictions in place? Thank you

The right to reclaim VAT is always on the basis that the cost incurred is i) used by the business and ii) and used in making taxable supplies. There does not appear to be a direct link between the cost of education of a child of an employee/Director and the business making taxable sales (ie, IT business offering web design services, charges VAT to its business customers, what is the direct link between those web design services and the school fees of a child of an employee or Director?) The business might argue that in order to retain quality Directors, the company has to offer child fees as part of its renumeration package (akin to a job offer that incudes a company car). This argument has less viability for a business with a sole Director/owner or small business (as suggested by your reference to FRS105) as the owner of the business is unlikely to demand a remuneration package from their own company or else they will leave. Assuming the argument for recruiting of employee/Directors is met, if fees are paid via salary sacrifice (ie, employer engages with the school), the company could reclaim the input tax from the school but would have to declare output tax on salary forgone to the employee, so employee would still end up with a VAT liability. If the Directors pay for it and puts an expense claim in to reclaim costs, this is likely to be seen as private use of company funds and the company cannot reclaim input tax as the benefit is personal for the Director. In the alternative the company could argue this is a perk like gym membership but the Supply of Services order provides that companies that make available any services supplied to them for private use or use other than wholly business by any person must declare output tax on the value of that private use and you're back to the company charging VAT. In short, the ability to reclaim input tax on school fees is highly risky, untested and will likely be challenged by HMRC as laws exist to prevent companies paying for the private use/benefit of Directors or employees already. A Director/shareholder has a fiduciary duty to ensure the company complies with all tax and corporate laws and remember that you are not the same as the company, the company is a separate legal person to the owner of the business, the company is not an extension of the individual person/owner, this is why a company has its own bank account and has to account for expenditure made to or from its owners (Directors Loan Account).

Hi,
If a VAT registereed business is using the Flat Rate Scheme, then normally they are not allowed to recover any VAT on their purchases. The exceptions to this are in the guidance below:
Capital expenditure goods
Thank you.