Reclaiming VAT on business expenses

If your business is VAT registered you need to be aware of which costs you are able to claim the VAT back on (this is called input VAT).

We outline the typical rules below.

Please note that if your business is on the VAT flat rate scheme you cannot usually claim any VAT on costs, with the exception of certain capital assets over £2,000.

Rule 1 - you need to have a VAT receipt

If the receipt or invoice for the cost does not show that there is VAT, then you can't claim it. 

If there is no VAT shown it could be that the goods or services you have bought are exempt from VAT, or it could be that the supplier was not VAT registered.

However it could also be that you have not been provided with a proper VAT receipt - if this is the case you could try asking the supplier for a VAT receipt, and if you get one you can then claim the VAT back.

Rule 2 - no VAT can be claimed on 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 exemption for staff entertaining that fits within the guidelines for staff entertainment HERE (such as a Christmas party less than £150 each), for this you can claim the VAT back.

Rule 3 - 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 your mobile phone is used 50% for business use you can only claim 50% of the VAT charged.

Rule 4 - costs relating to VAT-exempt supplies

if you purchase goods or services that your business uses to make VAT-exempt supplies, you cannot claim VAT on these costs. Example of VAT-exempt supplies would include if you make supplies of insurance, domestic rents, education and finance in certain circumstances. For most JF Financial clients Rule 4 will not be relevant.

Rule 5 - 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.

If they charge you VAT and their invoice / receipt shows a VAT number beginning GB then it means you can claim this VAT.

However if either the receipt shows a VAT number beginning with different letters than GB or doesn't show any VAT at all then no VAT can be reclaimed.

FreeAgent

If you use FreeAgent then you will need to ensure you are entering the correct amount of VAT when you explain a cost or expense, for example see below: