Our tax preparation specialists tell you how to reclaim the VAT you have paid on purchases for use within your business
At DSR Tax Refunds Ltd, we know that making sure you have sorted out your VAT can sometimes be a tricky task. That’s why our experts want to help make life as easy as possible for you by sharing our specialist knowledge with you. So, whether you are wanting more information about VAT or need to know about charitable tax relief, our handy guides are here to help. All our information is based on HMRC sources, so you can rest assured that these guides are filled with helpful and accurate information.
What purchases can you reclaim VAT on?
You are usually able to reclaim the VAT that you have paid on goods and services purchased for use in your business.
If the purchase is only partially for business use, you need to work out the business proportion of the purchase and reclaim the VAT on that part of the purchase. You can’t reclaim the VAT on any purchases for personal or private use. For example, if your mobile phone is used for business purposes for 75% of the time and personal use for the remaining 25%, you can reclaim 75% of the VAT levied on the phone purchase price and the service plan.
HMRC state that you must keep records to support your VAT claim and if you are claiming back the VAT on something which you have used for both business and personal use, you have to be able to demonstrate to HMRC how you have calculated the business proportion of use.
For all VAT claims, you must have valid VAT invoices.
What can’t you reclaim the VAT on?
You are not allowed to reclaim the VAT on any of the following purchases:
- Anything that has been bought for personal use only.
- Business entertainment costs.
- Anything you have bought from other EU countries, although you might be able to reclaim VAT charged under the electronic cross-border refund system.
- Business assets transferred to your business as a going concern.
- Goods sold under a VAT second-hand margin scheme, which charges VAT on the difference between what you paid for an item and what you sold it for, rather than the full selling price.
Can you reclaim the VAT on goods you bought before VAT registration?
It is possible in some circumstances to reclaim the VAT you paid on goods before you registered for VAT – however, there are time limits and the purchases must be for your business.
The time limits for backdating claims for VAT are:
- 6 months for services you paid VAT on
- 4 years for goods you still have, or goods you used to make other goods which you still have.
What about partly exempt businesses?
You will need to separate your calculations for purchases which relate to VAT – exempt and taxable supplies – so you can show these on your VAT returns.
Are business assets worth more than £50,000 treated differently?
Yes, there are special rules for some kinds of business asset purchase, such as:
- Land and buildings costing £250,000 or more before VAT
- Individual computers and single pieces of computer equipment costing £50,000 or more before VAT
- Ships, boats or aircraft costing £50,000 or more before VAT.
You might be expected to use the Capital Goods Scheme to adjust the amount of VAT you reclaim on these assets over several years. Some assets won’t be covered by the scheme, such as assets which are acquired just for resale or assets only used for non-business purposes.
How do you get your VAT money back?
You can check how much VAT refund you are owed by logging in to your HMRC online account. To claim the refund, you need to submit your VAT return.
You will need to give the details of the account you want to have the refund paid into. You will still need to do this even if you already have a direct debit set up for your VAT returns. You can do this online by going to your registration details.
You will usually be refunded within 10 days of HMRC receiving your VAT return. If you haven’t heard anything about your refund in after 30 days, you should contact HMRC to chase it up.
Can you reclaim the VAT on a new car?
If you have bought a new car which is only used for business purposes, you may be able to reclaim all the VAT you have paid on it. However, it must not be available for any form of private use and you must be able to demonstrate that to HMRC – perhaps it is written into your employee’s contract, for example.
Private use includes travelling to and from your usual place of work, unless it is a temporary place of work under the temporary workplace rules.
There are other instances in which you could reclaim the VAT on a new car. If it is mainly used as a taxi, a driving instruction car or as a self-drive hire car, you might be able to reclaim all the VAT.
If you lease a car, you might be able to reclaim 50% of the VAT. You could be able to reclaim 100% if it is only used for business, with no private use, or it is mainly used as a taxi or a driving instruction car.
You are usually able to reclaim the VAT if you have bought a commercial vehicle, such as a van or lorry.
If they are only used for business purposes, you can also reclaim VAT on motorbikes, motorhomes and motor caravans, vans with rear seats and car-derived vans.
Can you reclaim VAT on fuel costs?
You can reclaim all the VAT on fuel if your vehicle is only used for business purposes.
There are 3 ways to manage the VAT if there is a mixture of business and private usage:
- Reclaim all the VAT and then pay the right fuel scale charge for your vehicle
- Keep detailed mileage records and only reclaim the VAT used on business travel
- Don’t reclaim any VAT if your business mileage is so low that the fuel scale charge would be higher than the VAT you could reclaim.
If you choose not to reclaim the VAT for the fuel for one vehicle, unfortunately you can’t reclaim any of the VAT on fuel for the rest of the vehicles used by your business.
There are different methods to reclaiming VAT on your fuel purchases if you don’t pay a fixed rate under the Flat Rate Scheme.
Are there any other vehicle-related VAT costs that can be reclaimed?
Even if you don’t reclaim the VAT on the actual vehicle, you can usually reclaim VAT on the following:
- Any vehicle accessories you have fitted for business purposes
- All business-related maintenance and running costs, such as parking charges or repair costs.
You might be able to reclaim the VAT on your used vehicle, if the sales invoice shows the VAT. However, if the seller uses the VAT margin scheme you won’t be able to reclaim the VAT.
What about the VAT on staff travel costs?
You can reclaim the VAT on business travel expenses for employees, including meals and accommodation, unless you pay your employees a flat rate for expenses. However, you can’t reclaim the VAT on employee entertainment costs.
To be classed as an employee for VAT purposes, one of the following must apply:
- Someone who is directly employed by you (not by an agency or other party)
- Helpers and stewards who help you to run events
- Directors, partners and any other managerial staff
- Self-employed people who are treated as employees (such as contractors) although you can’t reclaim the VAT on the travel expenses for members of this group.
The following are not classed as employees for VAT reclaim purposes:
- Shareholders who are not otherwise employed by your business
- Former employees and pensioners
- Someone who is applying for a job in your business but is not yet employed by your business, such as someone interviewing for a position.
How can DSR Tax Refunds Ltd help?
We know that setting up a business can be hard work – there’s so much to think about and that’s before you start dealing with VAT reclamation. Our friendly team of tax specialists at DSR Tax Refunds Ltd are on hand to help make life easier for you. We’re the experts at identifying your maximum allowable expenses so call us on 0330 122 9972 – we’re the tax experts you can trust.