How to claim VAT back with these easy steps

VAT is an essential part of running a business in the UK. But did you know you can often reclaim some of it?

Understanding how to claim VAT back can reduce your expenses while ensuring compliance.

This guide breaks down everything you need to know about reclaiming VAT, from the key steps and eligibility rules to practical tips on how to avoid common mistakes.

Here’s what we’ll cover:

When can you claim back VAT?

Have you’ve found yourself wondering, “Can I claim back VAT?”

The answer is: if your business is VAT-registered (that is, your annual taxable turnover exceeds £90,000) and you’re making purchases for business use, then yes, you usually can.

When you buy goods or services that are used in your business, the VAT paid on those items (known as “input tax”) can often be reclaimed from HMRC. The idea is to prevent VAT from being a cost to businesses.

However, there are some exceptions.

You can’t claim back VAT on items or services for personal use, or on specific goods and services such as entertaining clients, certain cars, or supplies that are exempt from VAT.

Why is reclaiming VAT important?

Reclaiming VAT can help your business by improving cash flow and managing overall costs.

By offsetting input tax against output tax  you essentially lower the expense of goods and services.

For smaller businesses, where managing expenses is crucial, reclaiming VAT can make a significant difference by lowering operational costs.

Depending on your circumstances, you may also be entitled to a VAT refund from HMRC, which can further support your business cash flow.

Situations where VAT claims are allowed

So what can you claim VAT back on?

Not all expenses are eligible for VAT claims, so it’s important to know what qualifies. Here are the main circumstances in which you can reclaim VAT:

1. Business purchases and expenses: you can claim back VAT on items bought specifically for business purposes, such as office supplies, equipment, stock, and travel expenses. As long as the purchase was made by your business and not for personal use, and it meets all of HMRC’s other criteria.
2. Motor vehicles for business use: if you purchase a vehicle solely for business purposes, you can reclaim VAT. However, if the vehicle is used for both business and personal use, you can only reclaim a portion of the VAT based on the percentage of business use. For leased vehicles, a business can typically reclaim 50% of the VAT on the lease payments.
3. Staff travel and subsistence costs: you can claim back VAT on travel expenses such as accommodation and meals incurred by your employees while working away from the workplace. Keep in mind that VAT can’t be reclaimed on costs related to entertaining clients.
4. Services from other businesses: if you hire contractors or other service providers, you can claim back VAT on the costs if the services were for business use, the supplier is VAT registered, and you have received a valid VAT invoice.
5. Pre-registration VAT claims: if you registered for VAT recently, you may be able to reclaim VAT on certain goods and services purchased before your registration date. Typically, you can claim VAT on goods purchased within four years of registration, provided the goods are still on hand and used in the business for taxable supplies. For services, you can reclaim VAT on expenses incurred within six months before registration, if they directly relate to your taxable business activities.

How much VAT can you claim back?

The amount of VAT you can reclaim depends on your business expenses and how they are used. Generally, you can claim back the full VAT amount on business-related purchases if:

• They’re exclusively for business use
• They’re used in making taxable supplies
• You have a valid VAT invoice
• The expense is not for personal use or related to exempt activities.

For items that are used for both personal and business purposes, you can only reclaim the VAT for the business-related portion.

For example, if your mobile phone use was 70% for business and 30% for personal requirements, you can only reclaim 70% of the VAT paid.

Similarly, for leased vehicles, you can usually claim 50% of the VAT on lease payments if the car is used for both personal and business purposes.

Bear in mind that HMRC expects businesses to have documentary evidence for all VAT claims, including invoices and any calculations for apportioning mixed-use expenses.

How to practically make a VAT claim

Making a VAT claim involves a few simple steps, but you’ll need to be organised with your records and follow the rules carefully.

Here’s how to claim back VAT:

1. Keep accurate records

To claim back VAT, you need maintain a VAT account, including the summary of VAT you’ve charged and paid.

You also need valid VAT invoices from your suppliers to make a claim.

Make sure your records are complete and up to date, including all receipts and invoices. Your records should show that the purchase was for business use and that VAT was charged.

This will help if HMRC needs to check your claim.

2. Submit your VAT return

You need to submit a VAT return to HMRC, usually every three months, detailing the VAT you’ve charged customers (output tax) and the VAT you’ve paid on purchases (input tax).

The difference between these amounts is what you owe to HMRC or can reclaim. If your input tax exceeds your output tax, you can claim the difference as a refund.

3. Reclaim VAT on your VAT return

To reclaim VAT, simply enter the total amount of VAT you’re claiming back in your VAT return. This will usually be in “box 4” on your VAT return form.

HMRC will either reduce your VAT bill or pay you a refund if the VAT you’re reclaiming exceeds the VAT you owe.

4. Understand the deadlines

Make sure you file your VAT return by the deadline to avoid penalties. Typically, VAT returns are due one month and seven days after the end of the VAT quarter.

If you’re unsure about your VAT periods, check your online VAT account with HMRC.

Common mistakes to avoid when claiming VAT back

VAT claims can get tricky and mistakes are not uncommon. Here are some of the pitfalls to keep an eye out for:

• Claiming VAT on non-business expenses: make sure you’re only claiming VAT for expenses that are exclusively for business use. Mixing personal and business expenses can lead to rejected claims or penalties from HMRC.

• Incorrectly claiming VAT on cars: VAT rules for vehicles are complex, especially when they’re used for both business and private purposes. For purchased cars, you can’t reclaim VAT unless the car is used 100% for business, with no private use whatsoever. For leased cars, you can reclaim 50% of the VAT if the car is for both business and private use. But full VAT recovery requires no private use and strict evidence. Make sure you’re familiar with the rules before claiming VAT on car purchases or lease payments.

• Not keeping valid VAT invoices: HMRC requires a valid VAT invoice to support your claim. Make sure your invoices show the supplier’s VAT number, the amount charged, and details of the goods or services purchased.

For more tips on VAT compliance, see our guide on MTD for VAT.

How far back can I claim VAT?

If you’ve recently registered for VAT, you might be wondering how far back you can go to reclaim VAT on purchases made before registration.

The rules are straightforward:

• Goods: you can claim VAT on goods purchased up to four years before your VAT registration date, provided you still have them or they were used to make goods you still have and the goods are used for your VAT-taxable business activities.

• Services: you can reclaim VAT on services bought up to six months before registration, provided the services were used to support your VAT-taxable business activities and the services weren’t consumed before you registered (rent or utilities are often considered “consumed” when supplied, for example).

There are a few conditions to keep in mind. The purchases must:

• Relate to your business as it’s registered now
• Be used to supply VAT-taxable goods or services.

For example, if you purchased equipment or inventory within the allowable timeframe and still have it, you could be eligible to reclaim the VAT.

Similarly, VAT on professional services such as consulting or marketing can often be reclaimed, provided the services were used to support your business’s taxable activities.

Can I claim VAT back on international purchases?

Yes, but it depends on where the purchase was made.

If your UK VAT-registered business imports goods from outside the UK, you will usually pay import VAT.

You can generally reclaim this import VAT on your UK VAT return, subject to the normal rules for recovering input tax (for example, the goods must be for business use, you need valid documentation, such as a C79 certificate, etc).

If you’re a UK business buying goods or services in the European Union (EU), you may be able to reclaim VAT through the VAT refund system or the the 13th Directive process. But note that each member state has its own rules, processes, and deadlines.

For purchases from non-EU countries, VAT refunds are often not available. Some countries outside of the EU do allow VAT refunds to UK businesses, but this depends on whether there’s a reciprocal agreement in place. Check the UK government’s guidance for more details.

Can I claim VAT back as a sole trader?

As a sole trader, you can claim VAT on business expenses, but the process has specific nuances compared to limited companies.

Here’s what you need to know:

Business-only purchases

You can reclaim VAT on goods and services used exclusively for your business. Mixed-use items, such as mobile phones used for both personal and business purposes, are partially eligible. You’ll need to calculate and document the business-related portion to claim VAT accurately.

Keeping records

Sole traders need to maintain clear and detailed records of all purchases. This includes:

• VAT invoices from suppliers
• Receipts for expenses
• Documentation of how purchases support your business activities.

Accurate records not only support your claims but help you stay compliant with HMRC guidelines. For sole traders, accounting software such as Sage Accounting makes this process simple and stress free.

Differences for sole traders

Unlike limited companies, sole traders are personally responsible for all VAT liabilities. This means any errors in your VAT returns could directly affect you.

Investing in tax software can simplify VAT record-keeping and submission, ensuring you’re compliant and saving time.

Pre-registration VAT

If you bought goods or services before registering for VAT, you may be able to reclaim VAT on those expenses.

This follows the same timeline outlined above (four years for goods, six months for services). However, as a sole trader, it’s crucial that these purchases were for your business and not personal use.

Final thoughts

Claiming back VAT doesn’t have to be complicated.

By understanding when VAT can be reclaimed, keeping accurate records, and following the correct procedures, you can ensure your business recoups as much VAT as possible—improving your cash flow.

Just make sure you’re claiming for eligible expenses and keeping the necessary documentation to support your claims. Follow these steps and you’ll be well on your way to making VAT work for your business.

Editor’s note: This article was first published in November 2024 and has been updated for relevance.