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To reclaim VAT in the UK, your business must be VAT-registered and have valid VAT invoices for your purchases. You submit a VAT Return to HMRC, usually every 3 months, to reclaim the tax paid on eligible business expenses like equipment, travel, and utility bills.
What is VAT reclamation and how does it work?
VAT reclamation is the process of getting back the Value Added Tax (VAT) your business has paid on goods and services. When you are VAT-registered, you act as a collector for HMRC; you charge VAT on your sales (output tax) and pay VAT on your purchases (input tax).
The reclamation happens when you calculate the difference between these two figures on your VAT Return. If you have paid more VAT to suppliers than you have charged to customers, HMRC will refund you the difference. This process ensures that VAT is a tax on the final consumer, rather than a cost for the businesses in the supply chain.
Who is eligible to reclaim VAT?
You can only reclaim VAT if your business is officially VAT-registered with HMRC. While registration is only mandatory if your taxable turnover exceeds £90,000 in a 12-month period, many businesses choose to register voluntarily to reclaim costs.
Once registered, you must:
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Keep digital records of all VAT invoices and receipts.
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Charge the correct rate of VAT on your own goods or services.
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Submit a VAT Return through Making Tax Digital (MTD) compatible software.
What expenses can you reclaim VAT on?
You can reclaim VAT on most goods and services purchased exclusively for business use. Having a clear trail of these expenses is vital for a successful claim.
Common reclaimable expenses include:
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Business equipment: Computers, printers, and office furniture.
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Travel expenses: Fuel, public transport, and hotel stays for business trips.
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Utility bills: Heating, lighting, and phone bills for your business premises.
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Professional services: Fees for accountants, solicitors, or marketing agencies.
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Stock for resale: Goods bought to be sold to your customers.
What expenses are non-reclaimable?
HMRC has strict rules on what does not qualify for VAT reclamation to prevent personal spending from being claimed as a business cost.
You cannot reclaim VAT on:
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Business entertainment: Entertaining clients or partners is generally not eligible.
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Personal use: Anything bought for your own private use or non-business activities.
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Exempt supplies: Goods or services that do not have VAT charged on them, such as insurance or postage stamps.
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Cars: You usually cannot reclaim VAT on a new car unless it is used 100% for business (like a taxi or driving school car).
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Second-hand goods: If you bought them under a VAT margin scheme.
How credit card automation supports VAT reporting
Many business credit cards offer features designed to help you manage your business spending and maintain the digital records required by HMRC. By using these tools, you can reduce the manual work involved in preparing your VAT Return.
The Capital on Tap Business Credit Card offers seamless integrations with popular accounting software like Xero, QuickBooks, Sage, and FreeAgent, providing several functional benefits:
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Real-time syncing: Your transactions flow automatically from your card account into your accounting software.
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Digitised receipts: Snap a photo of your receipt and match it to the transaction instantly.
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Audit trails: Digital records provide a clear history of business spending, which helps in the event of an HMRC check.
How to reclaim VAT
The actual process of reclaiming VAT is done through your periodic VAT Return. This is typically done online every quarter, though some businesses use monthly or annual schemes.
To complete a successful reclaim, follow these steps:
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Gather your evidence: Ensure you have a valid VAT invoice for every claim.
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Calculate your totals: Total your output tax (sales) and your input tax (purchases).
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Submit via MTD: Use your accounting software to send the figures directly to HMRC.
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Pay or receive: Pay any balance owed to HMRC, or wait for your refund if your input tax was higher.
The bottom line
VAT reclamation is a standard process for VAT-registered businesses to recover tax paid on eligible expenses. Maintaining a digital trail of every transaction is a requirement under HMRC’s Making Tax Digital (MTD) rules. The Capital on Tap Business Credit Card provides the tools to automate this record-keeping by syncing directly with accounting software. This ensures that your business spending data is organised and accessible whenever you need to prepare a VAT Return.
Frequently asked questions
What kind of expenses can I claim VAT back on?
You can generally reclaim VAT on most goods and services bought exclusively for business use. Common examples include:
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Office equipment and stationery.
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Business travel and fuel costs (subject to specific HMRC rules).
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Professional services like legal or accounting fees.
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Utility bills for your business premises.
Can I reclaim VAT without a valid receipt?
In most cases, HMRC requires a valid VAT invoice or receipt to process a reclamation. For small expenses under £250, a simplified invoice is sometimes acceptable, but keeping digital copies of all receipts via your accounting software is the safest way to ensure compliance.
Do I need a receipt for every VAT claim?
Yes, HMRC requires a valid VAT invoice or receipt to support any claim you make on your VAT Return. For most purchases under £250, a simplified VAT invoice is usually acceptable, but it must still show the supplier's name, address, VAT registration number, the date of supply, and the total cost including VAT.
How long does a VAT refund typically take?
HMRC usually aims to process VAT refunds within 30 days of receiving your digital return. However, this timeline can vary if HMRC decides to conduct a check on your return or if they require additional information regarding your claims.
This does not constitute financial advice. If you want to understand your business’ tax obligations in detail, you should speak to your financial advisor or accountant.
