1. What Does Reclaiming VAT Mean?
Reclaiming VAT (Value Added Tax) means businesses registered for VAT can claim back the tax they’ve paid on eligible purchases and expenses related to running their business.
2. Who Can Reclaim VAT?
You can reclaim VAT if:
- Your business is VAT registered.
- Purchases were made for business purposes.
- You have valid VAT invoices or receipts from suppliers.
3. What VAT Can You Reclaim?
- VAT on stock, equipment, and raw materials.
- VAT on business travel (excluding personal use).
- VAT on office supplies and utilities.
- VAT on professional services (accountants, consultants).
4. What VAT Cannot Be Reclaimed?
- Personal expenses unrelated to the business.
- Business entertainment costs (client lunches, events).
- Fuel costs, unless you use the correct VAT fuel scale charge.
- Purchases without valid VAT invoices.
5. How to Reclaim VAT: Step-by-Step
Step 1: Register for VAT
- Apply through HMRC (UK) or the tax authority in your country.
- Receive a VAT number and certificate.
Step 2: Keep Proper Records
- Store VAT invoices, receipts, and credit notes.
- Maintain digital records if using Making Tax Digital (MTD) software in the UK.
Step 3: Submit VAT Returns
- File quarterly or monthly VAT returns via HMRC online portal or MTD software.
- Record all sales (output VAT) and purchases (input VAT).
Step 4: Calculate Reclaim Amount
- Subtract input VAT (paid on purchases) from output VAT (collected on sales).
- If input VAT is higher, you’re owed a refund.
Step 5: Claim Your Refund
- HMRC will process the return.
- Refunds are usually paid directly into your bank account within 10 working days.
6. Reclaiming VAT on Startup Costs
If you register for VAT late, you can still reclaim VAT on:
- Goods purchased up to 4 years before registration (if still in use).
- Services purchased up to 6 months before registration.
7. Common Mistakes to Avoid
- Missing or invalid VAT invoices.
- Claiming VAT on ineligible expenses (like entertainment).
- Failing to separate personal and business use.
- Late VAT return submissions leading to penalties.
8. Tips for Successful VAT Reclaims
- Use accounting software that complies with MTD.
- Keep digital copies of invoices for easy access.
- Work with an accountant if VAT calculations are complex.
- Double-check VAT rates (standard, reduced, zero-rated).
Frequently Asked Questions
Q1: How long does it take to reclaim VAT?
Typically 10–14 working days after submitting a VAT return, though it can take longer if HMRC requests checks.
Q2: Can small businesses reclaim VAT?
Yes, but only if they are VAT registered. Businesses under the threshold are not required to register but can choose to.
Q3: What happens if I make a mistake in a VAT claim?
You can correct minor errors in your next return. Larger mistakes must be reported separately to HMRC.
Q4: Can I reclaim VAT from other EU countries?
Yes, via the VAT refund scheme for overseas purchases, though rules vary after Brexit.
Q5: Do I need to reclaim VAT every quarter?
Most businesses submit quarterly VAT returns, but some file monthly or annually.
Q6: Can I reclaim VAT if I’m not VAT registered?
No, only VAT-registered businesses are eligible.
Conclusion
Knowing how to reclaim VAT is vital for reducing costs and maintaining healthy cash flow. By registering correctly, keeping accurate records, and submitting VAT returns on time, businesses can reclaim eligible VAT and avoid penalties. Using digital accounting tools and professional advice further ensures compliance and efficiency.