How to Claim VAT Back on Expenses. If you are newly VAT registered then this guide will help you understand which expenses you can and can’t claim VAT on, how you claim VAT and the evidence you are going to need.
What is VAT
VAT is a tax charged on most goods and services supplied in the UK.
There are three different types of VAT rates, which are applied depending on the goods or service being sold.
|Rate||Goods & Services Rate Applies to|
|Standard Rate 20%||Most goods and services|
|Reduced Rate 5%||Electricity, gas, carrycots, children’s car seats, maternity pads, sanitary protection products, nicotine patches|
|Zero Rate (0%)||Books, newspapers, children’s clothing, certain food & drink, household water|
How Does VAT Work
When a business is VAT registered they must:
- Charge VAT at the applicable rate on goods and services invoiced to their customers;
- Add up the VAT they have charged to their customers to HMRC;
- Add up the VAT they have paid on expenses;
- Deduct the steps 1 and 2 from each other and pay over the difference or get a VAT refund.
Usually, this is done quarterly using a VAT return form, but there are options available for doing this monthly or even annually.
Who Can Claim VAT Back
Only VAT registered business can claim VAT Back on expenses.
Businesses with a turnover of more than £85,000 must register for VAT. At this point, they have to add VAT to everything they sell and can claim VAT back on expenses.
If you are not VAT registered you cannot claim any VAT back on your expenses. You will just have to pay it.
You can choose to voluntarily register for VAT even if your turnover is below the registration limit. It can bring certain benefits.
What Expenses Can I Claim VAT Back On
You can claim VAT back on most of your business expenses, but there are certain expenses that you cannot claim VAT back on.
What Can You Claim VAT Back On
Here are some examples of business expenses that you pay for in your business that you can claim VAT back on:
- Consultancy fees;
- Goods and materials;
- Computer equipment.
You’ll only pay VAT if the business or person you are buying from is VAT registered. Other expenses you pay for may have no VAT on them, like travel, or others are exempt like books. In these cases you won’t have paid any VAT so will have nothing to reclaim.
What Can’t You Claim VAT Back on
There are certain expenses that you cannot claim back VAT on, even if you have paid it and they are for business reasons.
Here are some common types of expenses you can’t claim VAT back on:
- Client Entertainment;
- Anything used for personal reasons (you can reclaim the business % of the VAT you pay for expenses that you use both personally and for business, like a mobile phone);
- Car and Fuel, depending on how you purchase and paid for them.
How to Claim Back VAT on Expenses
You’ll need to fill out a VAT return to claim back VAT on expenses and pay over any VAT that you have charged to your customers.
To do this you need to use an HMRC approved software like Quickbooks and log all your sales and expenses line by line.
The bookkeeping software will then calculate how much VAT you owe and submit your VAT return to HMRC on your behalf.
You’ll need to make sure:
- You have VAT receipts and invoices for all your invoices and expenses;
- All your VAT invoices are made out to the name of the business or Company;
- Include all expenses so you don’t miss out on reclaiming any VAT (cash expenses are commonly missed);
- You don’t reclaim any VAT on expenses incorrectly, like entertainment (although these should still appear on the VAT return);
- No personal expenses are included on the VAT return.
What Does a Valid VAT Invoice Look Like?
You need valid VAT invoices to support any expenses, that is a receipt that includes:
- Supplier name;
- Supplier address;
- Supplier VAT number;
- Invoice date;
- A breakdown of the goods or service supplied;
- The net, VAT and total amount you are paying.
It means that things like 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 is correct or are worried that a false number has been given to you, then you can use a VAT Number Checker to validate the number.
Can I Claim Back VAT on Expenses Before I was 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 general, 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.
VAT Returns and VAT Payments Deadlines
You can check your HMRC Business Account to check the dates that your VAT returns are due.
Alternatively you can try the HMRC VAT Payment Deadline Calculator.
The deadline for quarterly VAT returns and VAT payment is usually due 1 month and 7 days after the end of a VAT quarter.
The deadline for monthly is usually VAT returns and VAT payment are generally due 1 month and 7 days after the end of a VAT month.
How Long Does it Take to Get a VAT Repayment
Businesses commonly have VAT repayments where the VAT on expenses exceeds VAT on income for a VAT period.
VAT repayments arise when:
- A business has had a slow sales quarter or poor collections if using the VAT cash accounting scheme;
- A correction is made for VAT errors in previous quarters and there is missed VAT on expenses to reclaim;
- It is the first quarter VAT return and set up costs have exceeded income.
VAT repayments are usually made within 30 days of HMRC receiving the VAT return.
So for that reason if you are expecting a VAT repayment you should submit your VAT return sooner rather than later.
In most cases, the repayment will be made online but HMRC will occasionally issue cheques (although this is much less common these days).
Anita is a Chartered Accountant with over a decade of experience taking self-employed business owners from financially confused to business savvy.
She is the creator of the ‘Go Self Employed’ website, which is her corner on the internet where she makes self-employment less terrifying.