VAT registered businesses charge VAT on their sales and may be able to reclaim the VAT charged on their purchases and other expenses.
How VAT works
VAT on the sale of taxable goods and services
VAT charged on purchases and other expenses
Input VAT is deducted from output VAT and the difference is the amount due to or from HM Revenue and Customs (HMRC)
When can or can’t I reclaim VAT?
If you are not registered for VAT, you are not able to reclaim VAT on goods or services.
If you are registered for VAT, the general rule is that VAT can be reclaimed on goods and services bought by the business, known as input tax, as long as the business makes standard, reduced or zero-rates supplies.
You will need to keep all invoices you receive as evidence to support your claim. These VAT invoices must have been issued by someone who is VAT registered.
VAT cannot be reclaimed on goods and services that:
are for non-business use
relate to exempt supplies
are for client entertaining
are for the purchase of a car (with a few exceptions).
If you operate the VAT flat rate scheme there will be no claim for input VAT, unless it relates to capital expenditure over £2,000 (including VAT).
How do I reclaim VAT?
You reclaim VAT by showing how much input VAT you’ve paid when you submit your VAT return. This figure goes in Box 4 of the return.
HMRC will deduct this from the VAT you’ve collected in the same period, and they’ll ask you to pay the difference.
If you’ve paid more VAT than you’ve collected, you may get a repayment from VAT.
Input VAT cannot usually be claimed on cars. It can be claimed on some business vehicles if certain conditions are met. If a business is able to reclaim the input VAT, then VAT must be charged when the vehicle is sold.
There are various ways a business can deal with the input VAT it pays on vehicles and fuel:
Ways to reclaim
VAT on business vehicles – cars
The input VAT on the purchase of a car may be claimed if it is used mainly by a taxi driver, a driving instructor or where the business is renting out cars.
VAT on business vehicles – commercial vehicles
If a VAT registered business buys a commercial vehicle, such as a van, lorry or tractor, they will usually be able to claim the VAT back.
VAT on fuel – business only
If the fuel is used for business purposes only, you can reclaim all of the VAT.
VAT on fuel – business and private
If the fuel is used for both business and private purposes, you can opt to reclaim all of the VAT and add an amount called the fuel scale charge (based on CO2 emissions) to the output VAT on the VAT return.
VAT on fuel – mileage
If the fuel is used for both business and private purposes, you can opt to reclaim only the VAT that relates to business mileage (accurate records must be kept).
VAT on fuel – opt not to reclaim
If your business mileage is so low that the fuel scale charge would be higher than the VAT you reclaim you can choose not to reclaim any VAT.
You can read more on reclaiming VAT on vehicles and fuel on GOV.UK’s website here.
Can I reclaim VAT on staff travel?
You can reclaim VAT on employee travel expenses (for example fuel, hotels and meals), but you cannot reclaim VAT if you pay your staff for flat rate expenses.
Can I reclaim VAT on purchases made before registration?
The general rule is that VAT may be reclaimed on goods bought up to four years before registration and services up to six months before registration.
Goods must be bought by the business that is now VAT registered, be used for taxable (not exempt) business purposes, still be held by the business, or used to make other goods that are still held by the business. Examples include office equipment and goods bought for resale.
In order to qualify services must be bought by the business that is now VAT registered and be used for taxable (not exempt) business purposes. Examples include legal and accountancy services.
Interactive tutorial: reclaiming VAT
We run through:
the basic rules on reclaiming VAT
what you and can’t reclaim
what boxes need to be filed out when completing a VAT return.
Click on the start button below to begin.
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