Claim VAT back with these easy steps

Value Added Tax (VAT) is a fact of life for UK businesses, but did you know you can often reclaim some of it? Claiming VAT back can help reduce your expenses, but it’s important to understand when and how you can do this to avoid making mistakes.

In this guide, we’ll walk you through the key steps to successfully reclaim VAT, explain when VAT claims are allowed, and share practical tips to help you navigate the process.

When can you claim back VAT?

If you’ve found yourself wondering “Can I claim back VAT?”, then the answer is: if your business is VAT-registered and you’re making purchases for business use, then usually.

When you buy goods or services that are used in your business, the VAT paid on those items (known as “input tax”) can often be reclaimed from HMRC. The idea is to prevent VAT from being a cost to businesses.

However, there are some exceptions. You can’t claim back VAT on items for personal use, or on specific goods and services like entertaining clients, certain cars, or supplies that are exempt from VAT.

Why is reclaiming VAT important?

Reclaiming VAT can help your business by improving cash flow and reducing overall costs. By recouping the VAT you’ve paid, you essentially lower the expense of goods and services, making it easier to invest in other areas of your business. For smaller businesses in particular, where every penny counts, claiming back VAT can make a significant difference.

Situations where VAT claims are allowed

Not all expenses are eligible for VAT claims, so it’s important to know what qualifies. Here are the main circumstances in which you can reclaim VAT:

1. Business purchases and expenses: you can claim back VAT on items bought specifically for business purposes, such as office supplies, equipment, stock, and travel expenses. As long as the purchase was made by your business and not for personal use, you should be able to reclaim the VAT.
   
2. Motor vehicles for business use: if you purchase a vehicle solely for business purposes, you can reclaim VAT. However, if the vehicle is used for both business and personal use, you can only reclaim a portion of the VAT based on the percentage of business use. For leased vehicles, a business can typically reclaim 50% of the VAT on the lease payments.
   
3. Staff travel and subsistence costs: you can claim back VAT on travel expenses like accommodation and meals incurred by your employees while working away from the office. Keep in mind that VAT cannot be reclaimed on costs related to entertaining clients.
   
4. Services from other businesses: if you hire contractors or other service providers, you can claim back VAT on the costs as long as the services were for business use and you’ve received a valid VAT invoice.
   
5. Pre-registration VAT claims: if you registered for VAT recently, you may be able to reclaim VAT on some goods and services purchased before your registration date. Typically, you can claim VAT on goods purchased within four years of registration, as long as you still have the goods. For services, you can reclaim VAT on expenses incurred within six months before registration.
   

How to practically make a VAT claim

Making a VAT claim involves a few simple steps, but you’ll need to be organised with your records and follow the rules carefully. Here’s how to claim back VAT:

1. Keep accurate records
   To claim back VAT, you must have a valid VAT invoice from the supplier. Make sure your records are complete and up to date, including all receipts and invoices. Your records should show that the purchase was for business use and that VAT was charged. This will help if HMRC needs to check your claim.
   
2. Submit your VAT return
   You need to submit a VAT return to HMRC, usually every 3 months, detailing the VAT you’ve charged customers (output tax) and the VAT you’ve paid on purchases (input tax). The difference between these amounts is what you owe to HMRC or can reclaim. If your input tax exceeds your output tax, you can claim the difference as a refund.
   
3. Reclaim VAT on your VAT return
   To reclaim VAT, simply enter the total amount of VAT you’re claiming back in your VAT return. This will usually be in “box 4” on your VAT return form. HMRC will either reduce your VAT bill or pay you a refund if the VAT you’re reclaiming exceeds the VAT you owe.
   
4. Understand the deadlines
   Make sure you file your VAT return by the deadline to avoid penalties. Typically, VAT returns are due 1 month and 7 days after the end of the VAT quarter. If you’re unsure about your VAT periods, check your online VAT account with HMRC.

Common mistakes to avoid when claiming VAT back

VAT claims can get tricky, and mistakes are not uncommon. Here are some of the pitfalls to keep an eye out for:

• Claiming VAT on non-business expenses: make sure you’re only claiming VAT for expenses that are exclusively for business use. Mixing personal and business expenses can lead to rejected claims or penalties from HMRC.
  
• Incorrectly claiming VAT on cars: VAT rules for vehicles are complex, especially when they’re used for both business and private purposes. Make sure you’re familiar with the rules before claiming VAT on car purchases or lease payments.
  
• Not keeping valid VAT invoices: HMRC requires a valid VAT invoice to support your claim. Make sure your invoices show the supplier’s VAT number, the amount charged, and details of the goods or services purchased.
  

For more tips on VAT compliance, see our guide for MTD for VAT.

Can you claim VAT back on international purchases?

Yes, in some cases, you can reclaim VAT on purchases from outside the UK, but the process is more complex. You’ll need to use the VAT refund scheme for businesses based in the UK but buying goods or services in the EU. Each EU country has different rules on VAT refunds, so it’s important to check the specific requirements for the country where the purchase was made. For non-EU countries, VAT may not be recoverable at all.

Final thoughts

Claiming back VAT doesn’t have to be complicated. By understanding when VAT can be reclaimed, keeping accurate records, and following the correct procedures, you can ensure your business recoups as much VAT as possible—improving your cash flow in the process. Just make sure you’re claiming for eligible expenses and keeping the necessary documentation to support your claims.

Follow these easy steps, and you’ll be well on your way to making VAT work for your business.