A Detailed Guide to Claiming VAT Back

A Detailed Guide to Claiming VAT Back

Claiming VAT back is a challenging process, especially if your business is registered for Value-added tax (VAT), you must charge VAT on all your goods and services before paying the corresponding amount to HMRC.

The good news is, being VAT registered means you can reclaim VAT on all items your business buys, making them cheaper than if you weren’t VAT registered.

It’s important to understand the process of claiming VAT back, as this can sometimes be time-consuming and not always straightforward. This guide will take you through every step in claiming VAT back.

Who Can Claim VAT Back?

Before you can claim VAT back, your business must be a VAT-registered business. Your business must register for VAT if your VAT taxable turnover has exceeded £90,000 over the past 12 months. However, if your turnover is below this level, you can then register voluntarily.

What Can You Reclaim VAT On?

VAT can be reclaimed only on goods and services meant specifically for your business. To get a clear understanding of what you can reclaim VAT on, check the following:

Reclaiming VAT on Travel and Food

VAT can be reclaimed on travel and food for employees, which are paid for by the business. This includes VAT charged on travel, hot food and accommodation such as hotels.

It’s also good to note that most public transport is zero-rated for VAT, so there will be no VAT to reclaim.

Reclaiming VAT on Vehicles

You can also reclaim VAT on vehicles bought solely for your business use. You must be able to prove to HMRC that it’s not meant for personal use, such as parking it in a secured garage attached to your business overnight.

If you buy a new car mainly to be used for taxi, driving lessons, or for self-drive hire, you might also be able to reclaim all the VAT on the new car.

Companies can typically recover 50% of the VAT from the cost of renting a replacement vehicle when their own company vehicle is unavailable. If you rent a car for fewer than 10 days and solely use it for business, you can recover the entire VAT amount.

Reclaiming VAT on Fuel

If you only use your vehicle for business, you can reclaim 100% of the VAT on fuel. However, if you use your vehicle for both personal and business reasons, which are:

  • Recover all the VAT and then pay a fuel scale charge that applies to your particular type of vehicle. Use the tool available on the gov.uk website to calculate this.
  • Only claim back the VAT for fuel that was used during business trips. However, you will have to maintain precise records of your mileage for this, which can be challenging.

It’s also possible to decide not to claim any VAT at all. If your business mileage is so low that the fuel scale charge would cost you more than the VAT you could recover, this can be a good choice. 

Reclaiming VAT on Previous Business Costs

You can reclaim VAT costs that your business paid before registering for VAT by including them in your first VAT return. However, there are specific guidelines that you must adhere to in order to achieve this.

  • You can reclaim VAT on capital expenses that are within the previous four years before the date of VAT registration. Note that these goods must still own and used by your business.
  • VAT can also be reclaimed on any accounting and legal services that your business purchased in the previous six months from the date of VAT registration

All records of items purchased, such as VAT receipts, must also be provided, and must include the total amount of VAT you are claiming back in your first VAT return.

Reclaiming VAT on Personal Use

Only a portion of VAT can be reclaimed on items used for personal purpose. For example, if you run your business from home, you can only reclaim a proportion of VAT on services such as utilities and broadband.

Keeping VAT Records

It is important for every business to always keep accurate records when reclaiming VAT. Example of such records include:

  • VAT invoices
  • Retail receipts
  • Transaction proof

All these are crucial ways to show clearly the amount you’ve paid purchasing items used for your business.

How to Calculate VAT Payable

Calculating VAT payable is relatively straight forward. In order to do this, you simply need to work out the difference between the amount of VAT your business has charged on sales (output VAT) and the amount you’ve paid on business-related purchases (input VAT).

Then deduct your input VAT figure from your output VAT figure. If it’s negative, that’s the amount you need to reclaim. However, if it’s positive, you will need to pay that amount to HMRC.

For example, if your output VAT was £18,000 and your input VAT was £9,000:

£18,000 – £9,000 = £9,000 so you must pay £9,000 to HMRC

But if your output VAT is £9,000 and your input VAT is £18,000:

£9,000 – £18,000 = -£9,000 so you can claim back £9,000 from HMRC.

How to Claim VAT Back?

If you want to claim VAT back, you will need to show Her Majesty’s Revenue and Customs (HMRC) how much input VAT you have paid.

Online VAT Returns can be submitted on the HMRC website every quarter. For goods and services you can claim VAT back on, you must state how much VAT your business has been charged during the accounting period.

The VAT can only be reclaimed if the purchase also serves personal or private purposes.

Receiving a VAT Refund Payment

On completing the online VAT return form, HMRC will automatically calculate if you’re due for a VAT repayment for that financial year. 

VAT repayments are usually made within 30 days of HMRC receiving your VAT return. 

Need Help Claiming your VAT Back?

If you’ve read through our information and still find yourself in need of guidance to claim your VAT refund, don’t worry! Our team of experienced accountants is here to assist you every step of the way. Get in touch or book a discovery call with us today.