Reclaiming VAT on expenses – What can you reclaim VAT on?

This article looks at some of the main rules in relation to reclaiming VAT on your business expenses.

Please note that this isn’t a definitive list of rules, and you should always check with your accountant, or HMRC, if you’re in any doubt.

This article assumes you are not on any VAT schemes, such as the flat rate scheme.

We hope you enjoy this article from our archives. As tax rules change a lot over time, the information in this post may not be current, but we hope you still find it interesting.

The golden rule is that you should always get a valid VAT receipt when you purchase any goods or services for your business.

A valid VAT receipt must always include:

the supplier’s business name and address
their VAT number
the date (often referred to as the “tax point” or “date of supply”)
a description of the goods or services
the amount including VAT

If the item or service costs more than £250, to be a valid VAT receipt, it must also include:

your name and address (as the customer)
the total amount excluding VAT separately
the amount of VAT separately

A good tip, particularly with parking receipts, is to check if there is a VAT number printed on the reverse. Many people assume their parking charge doesn’t include VAT and are missing out on recovering quite a bit of VAT over the course of a year.

On the other hand, be wary of claiming back VAT on supermarket receipts, even where you’ve found the VAT registration number. VAT is not charged on essential food items, such as milk. Some supermarkets do give a figure for VAT. Where they don’t, you’ll need to check what codes they put against the items with no VAT.

As with all accounting records, it’s important to keep hold of your VAT receipts for at least 6 years.

Some of the other potential traps to be aware of when reclaiming VAT on your business expenses are as follows:

Personal use

If a cost that you are claiming VAT back on has some personal use element, then you can only claim the business use proportion of the VAT.

For example, if you purchase stationery that is used 50% for business and 50% personally then you can only claim 50% of the VAT charged.

Business entertaining

Even if you have a VAT receipt for business entertaining costs, you cannot claim this VAT, this is because there is a general VAT block on business entertaining by HMRC.

There is an exception for staff entertaining that fits within the guidelines for staff entertainment here.

Exempt supplies

If you make VAT exempt supplies you cannot recover any VAT related to that side of your business unless your costs are low and fall within the de-minimis tests.

Examples of VAT-exempt supplies would include if you make supplies of domestic rents, education, insurance and finance in certain circumstances.

Overseas digital services

Be careful if you are being charged VAT by an overseas digital service provider – common examples are Microsoft, Google, LinkedIn, Adobe and Facebook.

You are unlikely to be able to claim this VAT back as it will not be standard UK VAT, although if you give them your VAT number this should stop them charging you the VAT in the first place – we have an article all about this topic here.

Cars – purchased

You cannot reclaim the VAT paid if you purchase a company car. The only exceptions are where you’re a taxi firm, a driving instructor or a vehicle hire company.

Cars – leased

If you lease a company car, you cannot reclaim the full amount of VAT included in your monthly lease payments. It’s not all bad news, though. You can reclaim 50% of the VAT you pay on the lease hire element, and 100% of the VAT you pay on any monthly service charge element.

Mileage claims

Don’t assume that the 45p/25p per mile includes VAT @ 20%. You can only recover VAT on the part relating to the assumed fuel element which is driven by the HMRC advisory fuel rates.

Book-keeping systems

Finally, don’t rely too heavily on your book-keeping software package, if you use one. Often the system will have a default VAT rule according to the type of expense it is.

However don’t rely on these default settings – make sure you check the VAT being claimed each time you are explaining a transaction.

Disclaimer