Not every business is allowed to claim the sales tax shown on incoming invoices as input tax. For example, businesses that apply the small business rule under Section 19 of the German Sales Tax Act (UStG) or that are not eligible for input tax deductions due to the nature of their activities must account for travel expenses differently than businesses that are eligible for input tax deductions.
But what does that mean, specifically, for hotel bills, gas receipts, or train tickets? And how can you avoid mistakes when submitting travel expense reports?
When is input tax not deductible?
Input tax credits allow businesses to claim a refund of the sales tax included in invoices from the tax office. If a business is not eligible for this, the sales tax included in the invoices is fully classified as a business expense.
This applies, among other things, to:
- Businesses that apply the small business rule (Section 19 of the German Value-Added Tax Act (UStG)),
- many nonprofit organizations,
- Businesses or organizations whose sales are exempt from sales tax.
If you are unsure whether your company is eligible for input tax credits, you should check with your tax advisor.
How does this affect travel expenses?
When it comes to travel expense reimbursement, the input tax deduction makes a significant difference.
If a company is eligible to claim an input tax credit, the included sales tax is shown separately and may be claimed as an input tax credit in accordance with statutory provisions.
If, on the other hand, there is no input tax deduction, the full invoice amount is treated as an expense. Input tax must neither be reported nor transferred to financial accounting.
Especially when dealing with a large number of documents, there is a significant risk of error here if sales tax is accidentally included.
A real-world example
An employee stays at a hotel during a business trip and receives a bill for €119.00, including 19% sales tax.
If the company is entitled to an input tax credit, the included sales tax may be taken into account in accordance with legal requirements.
If, on the other hand, there is no input tax deduction, the entire €119.00 is recorded as an expense. Input tax is neither reported nor transferred to the accounting department.
Here’s how Spesenfuchs supports businesses that don’t claim input tax credits
With Spesenfuchs, companies can set a central policy stipulating that no input tax deduction is allowed. The software then automatically applies this setting to all travel expense reports.
Postings and exports also take this setting into account, ensuring that no ineligible input tax is reported.
As a result, users do not have to manually review every single document, and the risk of incorrect postings is significantly reduced.
Especially helpful for small business owners
Companies that apply the small business rule, in particular, benefit from the automatic adjustment for the lack of input tax credit.
Since tax settings no longer need to be configured for each receipt, data entry becomes both easier and more reliable. Even with a large number of travel expenses, the reimbursement process remains consistent and transparent.
Conclusion
Companies that are not eligible for input tax credits must treat travel expenses differently than companies that are eligible for input tax credits. Even minor errors can result in input tax amounts being incorrectly reported in the accounting records or on tax returns.
With the “No Input Tax Deduction” feature, Spesenfuchs helps companies automatically account for this special circumstance. This ensures that travel expenses are processed correctly from entry to export—regardless of whether the receipts are entered on a computer or via the app.
Would you like to track your travel expenses easily, digitally, and in compliance with tax regulations? Try Spesenfuchs for free and see for yourself.