Explore how VAT reclaims work, what expenses qualify, and the practical steps to claim back VAT correctly for your business.
VAT is a major part of running a business in the UK but many business owners don’t realise they can often reclaim some of it.
Knowing how to claim back VAT can reduce your costs and help keep your business compliant with HMRC’s rules. This guide breaks down everything you need to know from eligibility to common mistakes and how to avoid them.
When Can You Claim Back VAT?
If your business is VAT-registered (which is required if your taxable turnover exceeds £90,000) and you’re making purchases for business use, then yes you can typically claim VAT back.
The VAT you pay on goods or services used for business (known as input tax) can usually be reclaimed from HMRC. This ensures the VAT doesn’t become a direct cost to your company.
However, there are exceptions:
- You can’t claim VAT on personal purchases.
- You can’t reclaim VAT on client entertainment, most car purchases, or supplies that are VAT-exempt.
Why Reclaiming VAT Matters
Claiming back VAT improves your cash flow and helps lower your operating costs, a key benefit for small businesses and sole traders managing tight budgets.
In some cases, you may even be due a VAT refund from HMRC if your input tax exceeds your output tax. That extra cash can make a real difference to your business.
When VAT Claims Are Allowed
- Business purchases: Office supplies, equipment, stock, and travel expenses that are for business use.
- Vehicles: If used strictly for business, you can reclaim full VAT. For mixed use (business and personal), you can only claim a portion. For leased cars, you can usually reclaim 50% of VAT.
- Staff travel and subsistence: VAT on staff accommodation and meals (while away on business) can be reclaimed. But client entertainment is excluded.
- Contracted services: If you hire VAT-registered contractors for business use and have valid VAT invoices, you can claim VAT on those services.
- Pre-registration expenses: If you’ve only recently registered for VAT, you may still be able to reclaim VAT on:
- Goods bought within the last 4 years (as long as you still have them and they’re used in your business)
- Services received within the last 6 months before registration (if directly related to taxable activities)
How Much VAT Can You Reclaim?
You can generally reclaim the full VAT amount if:
- The purchase is 100% for business use
- It relates to taxable supplies
- You have a valid VAT invoice
If a purchase is for both business and personal use, you can only reclaim the business-use proportion.
For leased vehicles used for both purposes, you can usually reclaim 50% of the VAT.
Make sure you keep proper documentation HMRC will expect clear records and justification for any mixed-use calculations.
How to Claim Back VAT: Step-by-Step
Claiming VAT is straightforward when you follow these steps:
1. Keep Proper Records
Maintain a VAT account that shows:
- VAT charged (output tax)
- VAT paid (input tax)
- Keep all valid VAT invoices and receipts. These must show the supplier’s VAT number, and the details of goods/services purchased.
2. Submit Your VAT Return
VAT returns are usually filed every three months. You’ll declare:
- Output tax (what you’ve charged)
- Input tax (what you’ve paid)
If you’ve paid more VAT than you’ve charged, you’ll be due a refund.
3. Reclaim VAT on the Return
Enter the total reclaimable VAT in Box 4 of your VAT return. HMRC will then either deduct this from your VAT bill or issue a refund.
4. Stick to the Deadlines
VAT returns are normally due one month and seven days after your VAT period ends. Late submissions can lead to penalties.
Common Mistakes to Avoid
VAT reclaims can be tricky. Watch out for these pitfalls:
- Claiming VAT on personal expenses: Only claim VAT for business-related costs.
- Getting car VAT rules wrong: You can’t claim VAT on a purchased car unless it’s used exclusively for business. For leased vehicles, 50% of VAT is typically recoverable. But full VAT recovery requires no private use and strict evidence.
- Missing or invalid VAT invoices: Without a valid invoice, your claim may be rejected. The invoice must include key details like supplier name, VAT number, and the VAT amount.
Need help with MTD compliance? See our guide on Making Tax Digital for VAT.
How Far Back Can You Claim VAT?
If you’ve recently become VAT registered, you can go back:
- Four years for goods, as long as:
- You still have the goods
- They’re being used in your business
- They support your current VAT-taxable activity
- Six months for services, as long as:
- The services relate to taxable business activity
- They weren’t “used up” before you registered (like rent or utilities)
Can You Reclaim VAT on International Purchases?
Yes, but it depends on where and how:
- Imports into the UK: You’ll likely pay import VAT. You can usually reclaim this, provided you keep proper records (e.g. a C79 certificate).
- Purchases from the EU: You may be able to use the VAT refund system or 13th Directive process, depending on the country’s rules. But note that each member state has its own rules, processes, and deadlines.
- Non-EU countries: VAT refunds are uncommon but possible in some countries with reciprocal agreements. Always check the specific country’s policy and UK government guidance.
Can Sole Traders Claim VAT Back?
Yes, as long as you’re VAT-registered and your purchases are for business use.
Here’s what to keep in mind:
- Exclusive business use: Only claim VAT on the business-use portion of mixed-use items.
- Accurate record keeping: Maintain detailed records and VAT invoices.
- Responsibility: Unlike limited companies, sole traders are personally liable for VAT — so errors in your return can impact you directly.
Using accounting software like XERO or QuickBooks can simplify this and keep you compliant.
Pre-Registration Claims for Sole Traders
If you registered for VAT recently:
- You can reclaim VAT on goods from up to four years ago
- You can reclaim VAT on services from up to six months ago
These purchases must support your current VAT-taxable business activity and must not have been for personal use.
Final Thoughts from Accounting People
Claiming back VAT doesn’t need to be complicated — but it does need to be accurate.
By understanding which expenses qualify, keeping valid records, and submitting returns correctly, your business can reclaim as much VAT as possible — boosting your cash flow and helping you grow.
Stay Compliant, Save Money — with Accounting People
Need help reclaiming VAT or staying on top of your returns?
Book a free consultation with our VAT experts today — we’ll guide you through the rules, help maximise your claim, and take the stress out of compliance.
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