How to reclaim VAT

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    Charging, calculating, and claiming VAT can be a headache, but reclaiming what you’re owed can significantly improve your bottom line. As with all accounting, it comes down to disciplined record-keeping and an understanding of the rules.

    A company must be VAT-registered to claim VAT on goods/services used for business purposes. It’s crucial to keep receipts and be aware of what costs are eligible for a VAT refund. The refund is the sum of input VAT minus output VAT in the same period, which is calculated in a quarterly VAT return.

    If you don’t know your input tax from your output tax, read on for Jameco Group’s helpful guide on how to reclaim VAT, including who can claim and what is allowable (and what isn’t). We’ll also include some specific advice on claiming back VAT for the construction and marketing industries, in which Jameco Group has specialist accounting expertise.

    For help with VAT and other key accounting tasks, please contact Jameco for a friendly chat.

    What are the rules for reclaiming VAT (Value Added Tax)?

    VAT is a tax on the value added to goods and services and is currently charged at 20% (VAT rates are subject to change; please see gov.uk for the latest VAT rate).

    For VAT-registered businesses, the process of reclaiming VAT involves offsetting the VAT paid on purchases (input VAT) against the charged VAT collected on sales (output VAT). This ensures that businesses only pay VAT on the value they add.

    While reclaiming VAT on most business expenses is straightforward, there are a few key conditions to remember. For items used for both business and personal purposes, you can only reclaim VAT on the business proportion.

    This means keeping meticulous records like invoices, receipts, and usage logs to justify your claims. Each purchase/sales invoice must include specific information, such as the supplier’s VAT number, a description of the goods or services, how much VAT is included, and the date of the transaction.

    A VAT return is typically filed each quarter using software compatible with Making Tax Digital. You can expect the VAT refunded within 30 days.

    The Standard VAT Accounting scheme is the default scheme, under which businesses charge VAT on their sales and reclaim VAT on their purchases. They typically submit VAT returns quarterly.

    Alternatives exist, such as the VAT Flat Rate Scheme, which allows businesses to pay HM Revenue & Customs (HMRC) a fixed percentage of their turnover as VAT.

    Who can reclaim VAT?

    You must be registered for VAT to charge and claim VAT. Registration is mandatory if your taxable turnover exceeds £85,000 in a 12-month period (as of 2024). Once registered, you can reclaim VAT on most goods and services you purchase for business purposes.

    Any VAT-registered business can reclaim VAT on qualifying purchases, from sole traders to limited companies.

    It’s important to remember that your company doesn’t have to charge VAT on its services/products for you to be able to claim back VAT on business expenses, but you still need to be VAT registered.

    Your business can’t be VAT registered if it deals exclusively in VAT-exempt goods/services (not to be confused with zero-rated VAT items).

    What can be reclaimed?

    VAT can generally be reclaimed on the following goods/services if they are for business use only, or else you must proportion the amount used for business purposes.

    Business expenses, including:

    • Office equipment and stationery
    • IT services and software
    • Professional services (legal, accounting, consulting)
    • Advertising and marketing expenses

    Employee travel expenses for business trips:

    • Train, bus, taxi and airfares
    • Hotel accommodation
    • Fuel costs for business mileage (see more here)
    • Car rental

    Business vehicles:

    • The purchase, lease, or hire of vehicles, including commercial vehicles
    • Fuel and maintenance costs for business vehicles
    • Vehicle insurance and road tax

    Mobile phones and internet bills (proportioned if used for private mobile phone calls)

    Property-related expenses, including:

    • Rent or lease payments
    • Property maintenance and repairs
    • Utility bills (electricity, gas, water) for business premises. If you work from home, you will have to calculate the dedicated workspace area by your entire living space to determine the portion of VAT you can claim back

    Professional services, including:

    • Legal advice and services
    • Accountancy and bookkeeping services
    • Consulting and advisory services

    Training courses related to the business activities

    Business purchases, including:

    • Inventory and stock items
    • Machinery and equipment used in production
    • Raw materials and components

    Import VAT

    There are rules and exceptions for nearly all of these, which is important to understand. You can find out more on the government’s VAT website pages or seek advice from a friendly accountant like Jameco Group!

    What VAT expenses can marketing companies claim?

    In addition to the items above, here are some specific items for which marketing companies can claim back VAT.

    Website costs, including:

    • Purchase of website themes, templates, or plugins
    • Web hosting services and domain registration fees

    Advertising and promotion, including:

    • Print and digital advertising campaigns
    • Social media advertising
    • Promotional materials (brochures, flyers, banners)

    Creative services, including:

    • Graphic design and branding
    • Copywriting and content creation
    • Photography and video production

    Event management and planning services

    Software and technology

    Remember, when claiming VAT on expenses used for both business and personal use (e.g., mobile phone bills), you need to demonstrate a correct VAT split based on business use.

    What VAT expenses can the construction company claim?

    In addition to the items above, here are some examples of construction industry-specific VAT claims:

    Construction materials and supplies, including:

    • Timber, steel, bricks, cement, aggregates, concrete and other building materials
    • Plumbing and electrical supplies
    • Fixtures and fittings
    • Tools

    Subcontractor services, including:

    • Construction labour
    • Plumbing, electrical, and HVAC installation
    • Carpentry and roofing services

    Purchase, lease, or hire of plant and machinery, including:

    • Excavators, cranes, and bulldozers
    • Concrete mixers and pumps
    • Scaffolding and access equipment

    Site-related expenses, including:

    • Site surveys and groundwork
    • Temporary site accommodation and facilities
    • Security services and fencing

    Purchase and running costs of commercial vehicles

    • Note: a fuel scale charge sometimes applies to a commercial vehicle, affecting the reclaimable amount

    Legal and professional fees, including:

    • Drawing up contracts for construction projects.
    • Obtaining licences and permits
    • IR35 consultancy fees
    • Accounting fees

    What cannot be reclaimed?

    Here are some general examples of non-reclaimable VAT:

    • Goods and services used for non-business purposes
    • Goods and services purchased from VAT-exempt suppliers
    • Expenses without a valid VAT invoice (always keep your receipts!)
    • Entertainment and hospitality (client dinners etc.)
    • Private travel (including to and from a regular place of work)
    • Fuel for private use

    This is not an exhaustive list. It’s always best to consult with a qualified accountant if you’re unsure about a specific expense.

    Reclaiming VAT is made easy with Jameco group

    For small business owners, navigating Value Added Tax (VAT) can be overwhelming amidst their many responsibilities. With concerns about compliance, potential errors, and missed opportunities for savings, the expertise of an accountant can provide much-needed assurance.

    Jameco Group’s VAT services aim to make your life easier, free up your time, give you peace of mind, and maximise your VAT claims.

    We can advise you on which VAT scheme is most suitable for your business and guide you through the registration process. To ensure you remain compliant, we can introduce robust accounting systems using our accounting software of choice, Xero.

    To arrange a no-obligation consultation, please get in touch with our accountants today..

    Frequently asked questions about reclaiming VAT

    Can you reclaim VAT on expenses without a receipt?

    In most cases, HMRC requires valid VAT invoices as evidence of VAT paid on expenses, but it may be possible if you have a detailed bank statement.

    Retail receipts don’t always show the VAT charged but are still valid if the purchase price is less than £250.

    How far back can you reclaim VAT?

    Businesses can generally claim back VAT on goods purchased up to four years before VAT registration, or services bought up to six months before being registered for VAT. This is provided the goods and services were used to make taxable supplies once VAT registered, i.e. they must still be in use.

    What happens if you claim back too much VAT?

    If you overclaim VAT costs, you’ll be liable to repay the reclaimed amount plus interest. Additionally, HMRC may impose penalties that can be a significant percentage of the overclaimed amount.

    If you have paid more VAT than you’ve collected, then it is possible to request a repayment.

    To ensure you claim back VAT correctly, it’s essential to record VAT activity carefully.

    Can VAT be claimed on capital expenses?

    Businesses can reclaim VAT on certain capital expenditure, i.e., long-term items like property, machinery, or equipment. However, unlike regular business expenses, where VAT can be reclaimed within the same period, VAT on capital expenses is usually recovered gradually over the useful life of the asset through a process called capital allowances.

    Further reading on VAT:

    James Wheeler, founder and managing directors of Jameco Group
    James Wheeler

    James has over 10 years of experience in accountancy and taxation. He has a real passion for business and truly believes SMEs are the heart of the UK economy. In 2017, he founded Jameco Group to provide first-class accountancy, taxation, and business advisory services to individuals and SMEs across the UK.

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