How to reclaim VAT on business purchases
As a small business owner or freelancer, you’ll be required to submit a VAT (Value Added Tax) return for your business every three months to HM Revenue and Customs (HMRC). We understand that the process of reclaiming VAT is, quite frankly, a massive hassle for anyone to have to do themselves. That’s why we’ve outlined the key points you need to consider to prevent you trailing through the information yourself! Keep reading to find out all you need to know.
What is VAT?
VAT is the 20% purchase tax levied on most goods and services in the UK. In most situations, a business can claim input tax on its expenditure (as long as they are registered for VAT). You need to keep track of these purchases if you want to reclaim VAT. Luckily, on receipts, the VAT is always shown as a separate value to the cost of the purchase. This makes life so much easier when collecting all your receipts ready for your return.
Our VAT return service is designed to take care of the difficult submission of your return, so you can concentrate on your business. Contact us today to find out more!
When you can and can’t reclaim VAT.
You can normally reclaim the VAT paid on goods and services if they’ve been purchased for use in your business. For example, if you are required to stay in a hotel overnight for business reasons, you’ll be able to reclaim the VAT on your bill.
If your purchase is also used for private use at times, you can only claim the business proportion of the VAT. And if you’re not VAT registered, then you won’t be able to claim back on any goods or services – sorry about that, but that’s the way it is!
What do I need to check before reclaiming VAT?
Unsure whether you can claim back the VAT on your purchases? Don’t worry – we’ve outlined some of the things you can check to ensure the VAT can be reclaimed:
- The purchase was for business purposes
- The purchase wasn’t blocked for VAT reclaims, such as entertaining purposes
- You have a valid VAT invoice
Can I reclaim VAT on my business car and fuel?
Certain criteria need to be met, but you may be able to reclaim VAT on your company vehicle.
Generally, if you have a car provided by your company, you can claim back mileage for your business travel. Although, this will be done differently depending on whether the company pays for your fuel, or you do.
We’ve come up with a complete guide on claiming mileage on a company car, so check it out!
Can I reclaim VAT on purchases made before my business became VAT registered?
In a word – yes! You can reclaim VAT on goods and services that were purchased before your registered your business for VAT. As a rule, you can reclaim the VAT on goods you bought up to 4 years before registration and services up to six months before registration.
These goods must be:
- bought by you as the entity that is registered for VAT
- bought for your VAT taxable purpose
- still held by you
There are a few exemptions to this rule. You won’t be able to claim back the VAT on the following purchases:
- Goods which you used up before you registered for VAT (such as petrol or electricity)
- Goods that you have already sold before VAT registered
- Goods that are related to the supplies you make that are exempt from VAT.
You’ll be able to reclaim the VAT on services you bought 6 months before you registered if the following is met:
- The services were bought by you as the entity
- The services are for your VAT taxable business purposes
However, you can’t reclaim on:
- Services that relate to goods you disposed of before you were VAT registered
- Services that relate to goods or services you supplied that are exempt from VAT
- What exactly should a valid VAT invoice include?
How can I spot a VAT invoice?
It can be confusing to know what a valid VAT invoice looks like, and you don’t want to file your VAT return only to discover it’s missing some vital information! Here a few things to look out for when it comes to spotting a VAT invoice:
- The supplier’s name, address and VAT registration number
- The supplier’s invoice number
- The name and address of the person to whom the goods are supplied (your business)
- Date of issue and time of supply of the goods or services (this may be the same as the date of issue).
- A description of the goods or services supplied
- The total amount payable for the whole invoice excluding VAT
You should note that retailers can issue less detailed invoices for purchases of up to £250. The invoice must still show key details such as the name, address and vat number of the supplier, nature of the goods and the rate of VAT applicable.
VAT invoices must be issued within 30 days of the date of supply or the date of payment.
What doesn’t count as a valid VAT invoice?
Invoices have the potential to be rejected if they’re not valid, so it’s important that you know when a VAT invoice isn’t actually a VAT invoice!
These are all examples of documents which would count as an ‘invalid’ invoice:
- Supplier statement
- Delivery note
- Request for payment
- Pro-forma invoice
How is my VAT refund repaid?
To keep things simple (in the eyes of HMRC, anyway), you’ll submit your VAT return online. First, you need to log in to your HMRC online account to submit your VAT figures. From here, you can then claim the figure owed to you by submitting your VAT return. Then, you need to give your account details to HMRC. Finally, you’ll receive your refund within approximately 10 days of HMRC receiving your return.
Need a helping hand with submitting your VAT return?
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