Overview of Reclaiming VAT
This blog provides an overview of the rules for reclaiming VAT and is based on information obtained from the HMRC website https://www.gov.uk/reclaim-vat
You can usually reclaim the VAT paid on goods and services purchased for use in your business. If a purchase is also for personal or private use, you can only reclaim the business proportion of the VAT.
Half of your mobile phone calls are private. You can only reclaim 50% of the VAT on the purchase price and the service plan.
Records must be kept to support your claim and show how you arrived at the business proportion for a purchase. You must also have valid VAT invoices.
What you cannot reclaim
You cannot reclaim VAT for:-
- anything that’s only for private use
- goods and services your business uses to make VAT exempt supplies
- business entertainment costs
- anything you have bought from other EU countries (you may be able to reclaim VAT charged under the electronic cross-border refund system)
- goods sold to you under one of the VAT second-hand margin schemes
- business assets that are transferred to you as a going concern
Purchases before VAT registration
You may be able to reclaim VAT paid on goods or services bought before you registered for VAT if the purchases were made within certain time limits.
Reclaiming VAT on Business assets of £50,000 and more
There are special rules for reclaiming VAT for:-
- individual computers and single pieces of computer equipment costing £50,000 or more before VAT
- aircraft, ships and boats costing £50,000 or more before VAT
- land and buildings costing £250,000 or more before VAT
How your VAT refund is repaid
Log in to your HM Revenue and Customs (HMRC) online account to view any VAT refund you are owed. You can also claim by submitting your VAT return in the usual way.
You need to give your account details to HMRC even if you’ve already set up a direct debit for VAT returns.
Usually, you will get your refund within 10 days of HMRC receiving your return but it may take longer.
Buying a new car
You may be able to reclaim all the VAT on a new car if you use it only for business.
The car must not be available for private use, and you must be able to show that it is not, (e.g. it’s specified in your employee’s contract).
Private use includes travelling between home and work, unless it’s a temporary place of work.
You may also be able to claim all the VAT on the purchase of a new car if it is mainly used:-
- as a taxi
- for driving instruction
- for self-drive hire
Leasing a new car
If you lease a car, you can usually claim 50% of the VAT. You may be able to reclaim all the VAT if the car is used only for business and is not available for private use, or is mainly used:-
- as a taxi
- for driving instruction
Self-drive hire cars
If you hire a car to replace a company car that’s off the road, you can usually claim 50% of the VAT on the hire charge.
If you hire a car for another reason (e.g. you don’t have a company car), you can reclaim all the VAT if all the following apply:
- you hire it for no more than 10 days
- it is used only for business
- it is not available for private use
You can usually reclaim the VAT or buying a commercial vehicle (like a van, lorry or tractor) if you only use it for business.
If they are used only for business, you can also reclaim VAT on:-
- motorhomes and motor caravans
- vans with rear seats (combi vans)
- car-derived vans
There are different ways of reclaiming VAT on fuel if you don’t pay a fixed rate under the Flat Rate Scheme.
You can only reclaim all the VAT on fuel if your vehicle is used only for business.
There are 3 ways of handling VAT if you use the vehicle for both business and private purposes. You can:-
- reclaim all the VAT and pay the correct fuel scale charge for your vehicle
- only reclaim the VAT on fuel you use for business trips – you’ll have to keep detailed mileage records
- choose not to reclaim any VAT (e.g. if your business mileage is so low that the fuel scale charge would be higher than the VAT you can reclaim).
You can usually reclaim the VAT for:-
- all business-related running and maintenance costs, eg repairs or off-street parking
- any accessories you have fitted for business use
You can do this even if you cannot reclaim VAT on the vehicle itself.
The sales invoice for your used vehicle must show the VAT.
You cannot reclaim if it doesn’t, (e.g. if the seller uses the VAT margin scheme).
You can reclaim VAT on employee travel expenses for business trips, including meals and accommodation that you pay for.
VAT cannot be reclaimed if you pay your employees a flat rate for expenses.
You cannot reclaim VAT on entertainment costs.
Who counts as an employee?
The following people count as employees for VAT reclaims:-
- someone directly employed by you, (i.e. not through an agency)
- directors, partners, any other managers
- self-employed people who are treated as employees (you cannot reclaim on travel expenses for this group)
- helpers or stewards who help run events
The following people do not count as employees for VAT reclaims:-
- shareholders who are not also employed by the business
- pensioners and former employees
- someone applying for a job, (e.g. interviewees)
If you require further information about reclaiming VAT please contact Stallion Accountancy Services.