What you need to know about reclaiming VAT

What you need to know about reclaiming VAT

Many owners of VAT-registered businesses are not always aware of reclaiming VAT. As a result, they risk missing out on revenue.

In fact, a study earlier this year says UK businesses are losing 12 per cent of revenue through not reclaiming VAT.

The findings came from a survey of finance and business leaders that explored how businesses were recouping money after the Covid pandemic.

The report explores why businesses were not reclaiming VAT effectively and what tools might help in the future. Part of the issue for missing out on reclaiming VAT was due to an increase in remote working.

Business leaders also say increasingly complex regulations are causing issues for businesses in terms of reclaiming VAT. As a result, they are not reclaiming it correctly.

What is VAT reclaim?

Value Added Tax (VAT) is a surcharge on most goods and survives in the UK and is currently set at 20 per cent for most transactions. For all you need to know about VAT, visit our blog about it.

You can reclaim VAT on your business expenses providing you are registered. Claiming it back is time-consuming and can be tricky but it is financially beneficial. Paying an accountant to do it can take out the hassle.

Who can reclaim VAT?

Every business with a turnover of £85,000 or more must be VAT registered. If you are below this level you can register voluntarily. Not all businesses will benefit from voluntary registration but if you buy a lot of goods that attract VAT it will be worth your while.

You must charge VAT on the goods and services you sell but you can claim any business expenses back.

What can I reclaim VAT on?

Only tax deductible expenses can be claimed back. The goods or services purchased most be specifically for your business. For example:

  • Stationery, including printer ink
  • Stock for resale or raw materials to produce items
  • Rent for your premises
  • Marketing, including advertising
  • Travel, including hotels and food during business trips

VAT can be reclaimed on items before you registered but they can only be done once. There are also limited on how far back you can reclaim.

You can only claim for capital expenses (goods your business uses) bought four years before registering as long as they are still in use. The cut-off for services you used and paid for is only six months prior to registration.

What about VAT reclaims on vehicles and fuel?

If buying a vehicle purely for business use, you can claim back VAT on it. You can also claim back VAT on the fuel. But if you use a vehicle for both business and personal travel it is more complicated. 

You may reclaim the full VAT but pay a fuel scale charge based on your vehicle’s carbon emissions. Or, you may find it more cost effective to pay the VAT if you don’t cover many business miles and the fuel scale charge is high for your vehicle.

How to reclaim VAT

To reclaim VAT you must submit a VAT return to HMRC every three months to claim refunds. You must show what VAT you charged your customers as well as what you have paid.

HMRC requires proof of purchase of goods and services and of those you have sold. You can provide either

  • A valid VAT invoice or
  • A receipt from the retailer

If you lose your receipt you maybe able to reclaim as long as you can prove the transaction, such as with a bank statement. You will need to show that what you bought is for business use.

If you feel overwhelmed by reclaiming VAT, don’t be put off. It is worth reclaiming VAT as this provides extra finances for your business. Contact us today if you want to know more about VAT matters.