VAT on blocked expenses (entertainment and cars)
Not all VAT on purchases can be reclaimed from HMRC. Most famously, VAT on business entertainment and on most car purchases is blocked — you pay it, but you cannot claim it back. Sales Scribe handles this for you: blocked VAT stays out of your VAT return automatically and is treated as part of the cost of the purchase.
Before you begin
- This applies to purchase invoices and Spend Money transactions.
- Whether VAT is reclaimable is decided per line, from the expense account the line is booked to — with a per-line override for exceptions.
How it works by default
Each ledger account carries a VAT reclaimable setting (visible in Settings → Chart of Accounts). The standard UK charts come with Entertainment (7075) and Motor Expenses (7076) already flagged as not reclaimable; every other account is reclaimable. When you book a purchase line to an account, the line simply follows the account — you pick the right cost category, and the VAT rule comes with it.
At the moment the invoice is posted, each line's reclaimability is frozen onto it. Changing an account's setting later never restates VAT periods you have already filed.
What blocked VAT does
Say you record a £100 + £20 VAT restaurant bill against Entertainment:
- On your VAT return — the £20 is excluded from your reclaimable input VAT (box 4). The VAT summary shows the excluded amount on its own Non-recoverable input VAT line, so the figures still add up transparently.
- In your ledger — the £20 is treated as part of the cost: the full £120 lands on the Entertainment account, and nothing goes to the Input VAT account. Your Input VAT account therefore always agrees exactly with what the return will reclaim, and your Profit & Loss shows entertainment at its true cost.
- Credit notes follow suit — if the purchase is later credited, a credit-note line linked to the original invoice line inherits its treatment, so a blocked purchase's credit reduces the blocked figure, not your reclaim.
Override a single line
Sometimes the account's default is wrong for one particular line — the classic case is buying a car through an ordinary asset or expense account (car VAT is usually blocked), or a genuinely reclaimable cost that happens to sit on a blocked account.
Each purchase-invoice line has an Input VAT selector:
- Auto (from account) — the default; follows the expense account's setting.
- Reclaimable — force this line's VAT to be reclaimed, whatever the account says.
- Blocked — force this line's VAT to be treated as irrecoverable.
[Screenshot required: a purchase invoice line showing the Input VAT selector set to Blocked]
Your choice is saved with the draft and applied when the invoice is posted. Use it for the odd exception — if you find yourself overriding the same account constantly, change the account's VAT reclaimable setting instead (or create a dedicated account).
Note: Spend Money lines follow their category account's setting automatically; the per-line override is currently available on purchase invoices only.