What VAT can be reclaimed?
If you’re a business that charges VAT on your sales, and you’re registered for VAT, then you can reclaim the VAT charged on your purchases and expenses. Find out what you need to know about reclaiming VAT in this guide.
How VAT works
There are 3 different VAT rates for the UK:
| VAT Rate | VAT amount |
|---|---|
| Standard rate | 20% |
| Reduced rate | 5% |
| Zero-rated | 0% |
Reduced rate VAT is applied to some goods or services. Zero-rated VAT can also be applied to others, and some items can be outside the scope of VAT like financial transactions or postage stamps.
When do I need to pay VAT?
Charging VAT is required as a member of the EU. However, to make it more tricky each member of the EU has a different VAT rates and rules.
If your business has a turnover of over £85,000 a year then you have to register for VAT. If your business has a turnover less than that, you can still voluntarily register. To do so, you can visit the HMRC website.
Find out more about VAT and use our VAT calculator
When can I reclaim VAT?
Your business must be registered for VAT with HMRC to be able to reclaim. You can only reclaim VAT on goods or services bought by the business.
To be able to reclaim VAT, the invoices or receipts for your purchases need to be issued by a VAT registered business.
It’s important to keep records of all your receipts and invoices. The best way to do this is with an online accounting software that will also allow you to submit your VAT Return through Making Tax Digital for VAT.
What good and services can’t I reclaim VAT on?
You can’t reclaim VAT on the following purchases:
- For solely personal or private use
- For entertaining a client
- For use making VAT-exempt supplies
Similar to income tax, if a purchase is used for both business and private use, you can reclaim a proportionate share of VAT based on how much it will be used for the business.
What if I’m on the Flat rate VAT scheme?
If you’re part of the Flat Rate VAT Scheme, you can’t reclaim VAT unless it is for capital expenditure over £2,000 (including VAT).
Capital expenditure is money spent by a business on acquiring or maintaining fixed assets, for example buildings, land or equipment.
How to reclaim VAT
You may be able to reclaim VAT on a purchase if your input VAT is greater than your sales output VAT.
- Input VAT is the VAT you pay on purchases
- Sales output VAT is the VAT you charge on sales of your goods or services
When you submit your VAT Return, you will show how much input VAT you’ve paid, and how much output VAT you have received. HMRC will calculate the difference.
If you have paid more VAT on purchases than you have received through sales, you will be able to reclaim the difference in amount as a repayment.
When will my VAT be repaid?
Once you have submitted your VAT Return and given your account details to HMRC, you will usually receive your refund within 10 days.
Make your return easier with a VAT software
Using a VAT software like Bokio makes doing your accounting and submitting your VAT Return quick and easy. When you do your bookkeeping and invoicing with Bokio, you’ll have all the records you need to support your VAT claim. Plus, you can submit an automated Making Tax Digital compliant VAT return to HMRC with just a few clicks. There’s no need for complicated VAT bridging software, or spending time figuring out how to calculate VAT.
Note: This article was updated August 2023
