Everything you need to know about reclaiming VAT 

Reclaiming VAT may sound straightforward… you buy something for your business, you claim the VAT back. But, with different rates, various schemes, and specific conditions to meet, it’s important to know what you can and can’t reclaim.

Understanding the rules means you can maximise your VAT refund while staying compliant with HMRC. Here’s what you need to know.🦉

Who can reclaim VAT? 

When it comes to reclaiming VAT, the golden rule is simple: if a purchase is wholly and exclusively for business use, you can reclaim VAT on it. But there are a few key points to remember:

• VAT registered businesses only: to reclaim VAT, your business must be VAT registered. 
• Not VAT registered? In most cases, you can’t reclaim VAT, but there are exceptions for organisations such as, an academy school or search and rescue charity. 
• VAT schemes matter: the VAT scheme you choose will affect how you reclaim VAT. 
• Sole traders & limited companies: both can reclaim VAT on business expenses. Sole traders just need to be extra careful with personal vs. business use. ⚖️ Keeping clear records and separating personal and business costs will ensure you stay compliant and avoid any VAT issues.

Key takeaway: if you’re VAT registered and your expenses are strictly for business use, you can reclaim VAT. If you’re not VAT registered, you might still be able to reclaim VAT under certain conditions – so it’s worth checking!

What can you reclaim VAT on? 

Not everything qualifies for a VAT reclaim in the UK, so let’s break it down: 

• Personal expenses & entertainment: think you can claim VAT on your lunch or weekend shopping spree? Think again. Personal stuff stays personal – no VAT back on that.
• VAT-exempt goods/services like insurance or financial services are a no-go, we’re afraid. 🙅‍♂️
• Office supplies, software & IT equipment such as, a shiny new laptop or a mountain of pens are fair game, as long as they’re for business purposes. 
• Professional services: hiring an accountant (like us 😜), consultant, or lawyer? You bet you can reclaim VAT on those business-related services. 

In short, keep it business-related, and your VAT claims will sail through. ⛵

VAT on business expenses 

When it comes to VAT on business expenses, the rules can be a little tricky. Here’s a breakdown of what you can and can’t reclaim:

Reclaiming VAT on food

You can’t reclaim VAT on personal meals, but if it’s a business meal, like a client lunch or work-related event, you can. Just make sure you keep records, note the purpose of the meal, and ensure it’s directly related to your business to satisfy HMRC. Dinner with friends or a casual lunch doesn’t cut it! 🥪

Claiming VAT on travel

If you’re travelling for business related purposes – think client visits, meetings, or conferences, you can reclaim VAT on business expenses like transportation and hotel stays. ✈️ But if you’re blending business and leisure (hello, holiday with a side of work), make sure you only claim VAT for the business portion of your trip. 

Claiming VAT on vehicles 

Thinking of buying a company car? You can usually only reclaim VAT if the vehicle is used 100% for business purposes. This means no personal use, even for a quick weekend trip to the sea-side. 

Reclaiming VAT on mileage

If you’re using your vehicle for work, you can reclaim VAT on fuel, but stick to HMRC’s fuel scale charges to avoid overclaiming. Track your mileage and business-related trips carefully! 💨

When expenses are split between work and home

If you’re using things like your internet or mobile phone for both personal and business use, you can only reclaim VAT on the portion that’s strictly for business. So, if your phone’s ringing off the hook with both work and personal calls, just be sure you’re keeping track of what’s business and what’s personal. 

If you’re working from home, you can also claim the Home Office Allowance, which lets you claim a flat rate based on how many hours you work from home each month (no need to calculate every individual cost!) 

Claiming back VAT on previous business costs 

Bought big-ticket items like machinery or equipment? Good news, you can reclaim VAT on those capital allowances. Just remember, if you later sell or dispose of the asset, HMRC may require you to repay some or all of the VAT, depending on its business use. 

Even professional services paid for before registering for VAT, are not a lost cause. If you’ve registered in the last four years, you can still reclaim VAT on business-related services like legal or consultancy fees. 💸

Keeping VAT Records

HMRC could ask for proof at any time, so make sure you’re ready to show them the goods! Here’s what you need to keep:

• All purchases and sales, including zero-rated or exempt items.
• Invoices issued and received (paper or digital). 🧾
• Self-billing agreements and VAT numbers.
• Bank statements, till rolls, and records of goods taken for personal use.

To stay on top of things, keep everything organised with our free bookkeeping tools, ensuring you’re always prepared for HMRC checks.

How to calculate and receive your VAT reclaim

Here’s how to calculate the VAT you can claim back for your business.

1. Calculate output VAT: this is the VAT your business charged on sales of goods and services in the accounting period.
2. Calculate input VAT: this is the VAT you paid on business-related purchases during the same period. 🛍️
3. Subtract input VAT from output VAT:
   • If output VAT is greater than input VAT, pay the difference to HMRC.
   • If input VAT is greater than output VAT, you can claim the difference back from HMRC.
4. Submit your VAT return: use Making Tax Digital (MTD) compatible software to file your return electronically.
5. HMRC processes your claim: if everything checks out, you’ll receive your VAT refund!

Make sure to keep track of both input and output VAT carefully to avoid overpaying or missing out on claims.

Final thoughts on reclaiming VAT

Reclaiming VAT can be a bit of a head-scratcher, but getting it right ensures your business stays tax-efficient and avoids costly mistakes. Keep solid records, follow the rules, and always double-check before claiming.