How to claim back VAT as a small business

Value added tax (VAT) is a surcharge on most goods and services in the UK, currently set at a standard rate of 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 can be time-consuming.

However, 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.

Who can claim back VAT?

Only VAT-registered businesses can claim back VAT.

Every business with a turnover of £90,000 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
• Stationery: printer ink, paper and postage.
• Premises: rent, insurance, security and utility bills.
• 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 and pension contributions.
• Travel: cost of travel, hotels and food 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 your business uses, you can claim for purchases made four years before registering if your business still uses 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 for business use, you can claim back VAT. You can also claim back VAT on fuel used for business travel.

However, the rules are more complicated if you use the vehicle for 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. 

The process for reclaiming VAT as a business

You must 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 ensure you're being honest, HMRC will need proof you’ve purchased the goods and services, and charged VAT on the ones you’ve sold.

As proof of purchase, you can provide:

• A valid VAT invoice
• A receipt from the retailer

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 proving the goods and services are for business use can be difficult. 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 Wi-Fi if you work at home?

Another common issue is spotting an invalid VAT invoice from a supplier, as 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 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.