As you no doubt know if you’re a business owner, as long as you are registered for VAT you can claim VAT back on the purchases you make for your business.
Since VAT is currently 20% this can be a sizeable amount, especially if you buy in a lot of goods and services from larger (VAT-registered) companies.
You can reclaim the VAT that you pay for purchases as long as those purchases relate to the goods or services your business sells that are liable for VAT. In practice thise means you can reclaim VAT on all items for which you hold a valid VAT receipt. A full valid VAT receipt will contain:
The supplier’s name and address
The customer’s (your) name and address
The date (or tax point)
A brief description of the good/services supplied
The net amount for goods and/or services before VAT is added
The VAT amount
The total or gross amount which contains the VAT
The supplier’s VAT registered number
A golden rule to remember is - if the receipt does not state a VAT number then you may not claim back VAT on that bill.
Reclaiming VAT on fuel used for business travel is a complex area, as is reclaiming it on ‘entertaining’. Other weird exemptions which have their own rules are expensive computers, boats or aircraft valued at over £50k, and buildings or land valued above £250k. Seek advice if you plan to (or hope to) reclaim VAT on any of these items.
6 more expenses that will definitely NOT contain VAT
Salaries & wages
VAT you paid to HMRC last time!
Not VAT Registered?
Even if you are not registered for VAT it is worth keeping a note of VAT you’ve paid on goods for your business (not services) since if you decide to become VAT-registered you can reclaim VAT for up to 4 years previously. This applies to goods only, not services (the time limit here is just 6 months), but if you bought expensive equipment when you started up you could be able to claim back the significant amount of VAT you were inevitably charged at the time,
When To Reclaim VAT
Normally you reclaim VAT via your quarterly VAT return, and HMRC repay it shortly after receiving your claim. If you generally expect to claim a repayment of VAT each time you submit your return, because you usually pay more input VAT than you charge on your sales, you can choose to make VAT returns monthly instead of quarterly.
This can be helpful in improving cashflow; however you can't do this if your turnover is below the VAT threshold and you registered voluntarily for VAT. Please ask FMC for more information.
VAT Windfall – Case Study
FMC were able to claim VAT back for a successful but financially-disorganised business that had not filed a single VAT return for a 4 years. After ploughing through boxes of paperwork and invoices the FMC team brought his accounts up-to-date, computerised them, and submitted 23 monthly and quarterly VAT returns to bring the company’s books and filings up to date.
The result was reclaims of VAT totalling in excess of £125,000, and one very happy customer!
The Financial Management Centre in Farnborough can help your business finances back on track; who knows, you may be able to get a sizeable VAT refund too!