Claiming back VAT on expenses can save a business money, but not all businesses can claim VAT back. In this guide, you’ll understand how claiming back VAT works as well as which businesses and expenses are eligible.
Table of contents
1. Who Can Claim VAT Back?
Only VAT registered businesses are allowed to claim VAT back on expenses. That’s because they become part of the reporting system to declare & claim back VAT using VAT return forms. If a business isn’t registered for this type of tax, then they will have no way of claiming back VAT.
Businesses must register for VAT once their business taxable turnover exceeds £85,000 – this is a separate tax registration than for example, a corporation tax registration or self assessment UTR number. The VAT rules are the same for businesses regardless of their business structure. So whether you are a Limited Company, self-employed or in a partnership you’ll be subject to the same HMRC registration, VAT thresholds and rules.
Confused by VAT? Read this guide to find out more about What VAT is and How it Works
Businesses with VAT exempt sales are considered outside the scope of VAT so cannot register for VAT and are unable to claim back VAT on expenses. Businesses that supply both taxable and exempt supplies can apply for a partial VAT exemption meaning they can claim back a portion of VAT on certain expenses.
2. How to Reclaim VAT on Expenses
If you are not VAT registered you cannot claim any VAT back on your expenses. You will just have to bear the extra cost through your business unless you choose to voluntarily VAT register, but you’ll get tax relief on your tax return for the full cost of what you pay.
If you are registered for VAT, then you can claim VAT back on most of the expenses that you pay for in the day-to-day running of your business. For example:
- Rent
- Freelancers
- Subscriptions
- Mobile phones
- Stock
- Computer equipment
Special rules apply when it comes to claiming back VAT on cars, fuel, mileage and staff entertainment. And when it comes to some expenses that you pay for in your business may not have VAT on them most likely because:
- the supplier they have used is not registered for VAT
- the expenses are zero rated for example travel
- the expenses are exempt from VAT for example bank charges or books.
In these cases their is no VAT to reclaim, but they need to be included in Box 7 net inputs on the VAT return.
3. VAT Expenses Businesses Cannot Claim VAT Back On
There are certain expenses that businesses cannot claim back VAT on, even if they have paid it as part of their business. These commonly include:
- Client entertainment;
- Personal expenses (although you can reclaim the business % of the VAT you pay for expenses that you use both personally and for business, like a mobile phone);
- Cars and fuel, depending on how you purchase and pay for them.
4. How to Claim Back VAT on Expenses
You’ll need to fill out a VAT return to claim back VAT on expenses and you’ll need to make sure that you have VAT receipts and invoices and that they are made out to your business with the following information:
- Supplier name;
- Address for supplier;
- Supplier VAT number;
- Invoice date;
- A breakdown of the goods or service supplied;
- The net, VAT and total amount you are paying.
Documents such as purchase orders, email requests for payment or pro-forma invoices are not valid VAT invoices for your return.
If you are in doubt that a VAT number you have been given is correct, then you can use a VAT number checker to validate the number you have before you pay any VAT over to your supplier.
5. Claiming Back VAT Before Becoming VAT Registered
If you are newly VAT registered, then it is worth considering whether you can claim back any VAT on expenses from before you registered. In most circumstances, you can go back 4 years to reclaim VAT on goods you have purchased and are still using or 6 months for any services you have bought. But you should read this guide to find out how far back you claim VAT on expenses to check what you can and can’t reclaim.
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