1. What Is VAT and How Does It Work for Businesses?
VAT (Value Added Tax) is a tax added to most goods and services in the UK. Businesses charge VAT on sales (output VAT) and pay VAT on purchases (input VAT). If your business is VAT-registered, you can reclaim the input VAT, provided it meets HMRC’s requirements.
2. Who Can Claim Back VAT?
Only VAT-registered companies can claim back VAT. Registration is required once your taxable turnover exceeds the VAT threshold, currently £90,000. Voluntary registration is also allowed for businesses below this limit.
3. What Can Companies Claim VAT Back On?
Businesses can claim back VAT on goods and services used for business purposes, such as:
- Office rent and utility bills
- Business travel and accommodation
- Stock and inventory
- Marketing and advertising
- Equipment and software
Ensure the purchases are strictly for business use to remain eligible.
4. What Cannot Be Claimed Back?
Some expenses are not eligible for VAT reclaims, including:
- Client entertainment costs
- Personal expenses
- Purchase of cars (with few exceptions)
- Non-VAT registered supplier invoices
Check HMRC guidelines if you’re unsure about specific items.
5. How to Claim VAT Back
You reclaim VAT by filing a VAT return, usually every quarter. This includes:
- Total sales and VAT charged (output tax)
- Total purchases and VAT paid (input tax)
- The difference, which is either paid to HMRC or refunded to you
Use HMRC-approved software compliant with Making Tax Digital.
6. Importance of VAT Invoices
You must keep valid VAT invoices to support your claim. These must include:
- Supplier’s VAT registration number
- Date and amount of VAT
- A clear description of goods or services
- Your business name and address (for some cases)
Without proper documentation, your claim may be rejected.
7. Claiming VAT on Imports
Businesses importing goods into the UK can claim back VAT using a C79 certificate from HMRC. This should be recorded in your VAT return, with the correct import VAT shown as input tax.
8. Partial VAT Claims for Mixed-Use Expenses
If an expense is used for both business and personal purposes (like a mobile phone), you can only reclaim the portion related to business use. Keep detailed records to support your calculations.
9. VAT on Start-Up Costs
Companies can reclaim VAT on goods bought up to four years before registration (if still in use), and on services up to six months prior, as long as they were for business purposes and you have VAT invoices.
10. Adjustments and Errors in Claims
If you discover an error in your VAT return, it can often be corrected in your next return if under a certain threshold. Larger mistakes require a separate correction form. Always update your records accordingly.
11. Can Non-UK Businesses Claim VAT?
Yes, under the VAT Refund Scheme, overseas businesses that incur VAT in the UK but are not established or VAT-registered here may apply for a refund. Conditions apply, and claims must be submitted within set deadlines.
12. When Are VAT Refunds Paid?
HMRC typically processes VAT refunds within 10 working days of receiving your return. Delays may occur if they need to verify your information.
Frequently Asked Questions
Q1: Can small businesses claim back VAT?
Yes, as long as they are VAT-registered, regardless of their size.
Q2: Can a company claim VAT without a receipt?
No, a valid VAT invoice is required to support any claim.
Q3: Can companies claim VAT on fuel?
Yes, if it’s used for business purposes. Partial reclaims may apply if there’s private use involved.
Q4: How far back can VAT be claimed?
You can reclaim VAT on goods up to 4 years prior and on services up to 6 months before registration.
Q5: What happens if I claim VAT incorrectly?
Incorrect claims can lead to penalties, interest, and repayments. Always double-check your records.
Q6: Do freelancers and sole traders qualify?
Yes, as long as they are VAT-registered and the expenses are business-related.
Conclusion
So, can companies claim back VAT? Absolutely—provided they are VAT-registered and follow the proper rules. Keeping accurate records, understanding eligible expenses, and using correct documentation ensures you make the most of your VAT entitlements while staying fully compliant.
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