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How to claim back VAT as a small business

How to reclaim VAT

VAT (value added tax), is a surcharge on most goods and services in the UK, currently set at 20% for the majority of transactions. Whether you’re a large or small business, you can reclaim VAT on business expenses provided you are registered for VAT. The process of accounting for VAT and claiming it back is notoriously fiddly and time-consuming, but the financial benefits make it more than worth the effort, even when you’re paying an accountant to do it. Here’s how to do it.

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Who can claim back VAT?

Only VAT-registered businesses can claim back VAT. Every business with a turnover of £85,000 must register, but you can register voluntarily if your turnover is below this level.

Once registered, you’ll have to charge VAT on the goods and services you sell, but you can also claim it back on the expenses your business incurs.

What can you reclaim VAT on?

You can only reclaim VAT on tax deductible expenses used specifically for your business. Here are some common goods and services you could claim back for:

  • IT equipment – work laptops, software and maintenance services etc.
  • Stationery – printer ink, paper, postage etc.
  • Premises – rent, insurance, security and utility bills etc.
  • Stock – any items bought for resale, or raw materials bought to produce items
  • Professional services – legal, finance and other services for running your business
  • Marketing – advertising, samples and more
  • Employment – salaries, bonuses, benefits, pension contributions etc.
  • Travel – cost of travel, hotels and food etc. incurred during business trips

You can also claim back VAT on purchases made before you registered, but you can only do this once and there are limits on how far back you can reclaim. For capital expenses, otherwise known as goods that your business uses, you can claim for purchases made four years before you registered, as long as your business is still using these items. However, you can only claim for services you used and paid for up to six months before you registered.

Can I reclaim VAT on business vehicles and fuel?

If you’re buying or leasing a car, van or truck purely for business use, you can claim back VAT on it. You can also claim back VAT on fuel used for business travel.

However, the rules are more complicated if you use the vehicle for both business and personal travel. You could, for example, reclaim the full VAT but pay a fuel scale charge, which is based on the vehicle’s carbon emissions. However, you might find it more cost effective to pay the VAT if you do relatively low mileage and the fuel scale charge is high for your vehicle. 

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The process for reclaiming VAT as a business

You need to submit a VAT return to HMRC every three months to claim your refunds. As well as showing the VAT you’ve paid, you need to show the VAT you’ve charged your customers.

To make sure you’re being honest, HMRC will need proof that you’ve purchased the goods and services, and charged VAT on the ones you’ve sold.

As proof of purchase, you can provide:

If you don’t have a receipt, you may still be able to claim back VAT by proving the transaction in another way – for example, with a bank statement. You’ll also need to show that it was for business use.

How can an accountant help me reclaim VAT?

There are a few pitfalls when it comes to reclaiming VAT. One is that it can be difficult to prove the goods and services are for business use. This is even more tricky if you’re going to keep them for personal use too – for example, how do you work out the correct VAT split on the costs of WiFi if you work at home? Another common issue is spotting an invalid VAT invoice from a supplier, because you won’t be able to use it for your claim. You in turn must makes sure that your VAT invoices are valid, so your business customers can make their own VAT claims.

Having an accountant on hand to help you means you don’t have to worry about getting all these aspects right – they will make sure everything is correct. They can also do the legwork of filing your return, meaning you can concentrate on your business.

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.