Can I reclaim VAT on purchases?
Value Added Tax (VAT) is a familiar part of doing business in the UK. It’s added to most goods and services, and for VAT-registered businesses, one of the key benefits is the ability to reclaim VAT on certain purchases.
But knowing when and how you can reclaim VAT isn’t always straightforward. There are rules about what qualifies, what doesn’t, and how the process works. This guide breaks it down clearly.
Who Can Reclaim VAT?
Only businesses that are VAT-registered with HMRC can reclaim VAT. If your business isn’t registered for VAT, you can’t claim back VAT on purchases, even if the items were bought for business use.
VAT registration is compulsory if your taxable turnover exceeds £90,000 (as of 2024/25). Businesses below this threshold can register voluntarily, which is sometimes beneficial depending on the nature of their trade.
What Purchases Can You Claim VAT On?
Business-Related Goods and Services
You can reclaim VAT on purchases that are used wholly or partly for business purposes. This includes:
Stock and raw materials
Equipment, tools, and machinery
Office supplies
Professional fees (accountants, solicitors)
Rent (if VAT is charged)
Marketing and advertising costs
Telephone and internet bills
Travel and accommodation (with some exceptions)
If something is used partly for business and partly personal, you can claim back the business proportion of the VAT.
What Can’t You Claim VAT On?
Not everything qualifies. Common items you cannot reclaim VAT on include:
❌ Entertaining Clients
VAT on client entertaining (meals, events, hospitality) is generally not recoverable. Staff entertaining (e.g. staff parties) is allowed, however.
❌ Personal Use Items
Items bought solely for personal use are excluded.
❌ Cars for Personal Use
VAT on cars is usually not reclaimable unless the car is used 100% for business, which is rare and heavily scrutinised.
❌ Non-VAT Invoices
If a supplier isn’t VAT-registered, or VAT isn’t charged on the invoice, there’s nothing to reclaim.
Reclaiming VAT on Expenses with Mixed Use
If you buy something for both business and private use — say, a mobile phone contract — you can reclaim VAT only on the business portion.
For example:
If you use your phone 70% for business, you can reclaim 70% of the VAT charged on the bill.
Accurate records are essential to back this up.
Can You Reclaim VAT on Fuel and Vehicles?
Fuel: You can reclaim VAT on fuel if it’s for business use. For mixed use (personal and business), you either:
Keep detailed mileage records to work out the business proportion, or
Apply the HMRC fuel scale charge, which simplifies the process but includes a tax adjustment for private use.
Vehicles: VAT on commercial vehicles (vans, trucks) is generally reclaimable. VAT on cars is only reclaimable if the car is strictly for business use with no private use whatsoever — a high bar that few businesses meet.
VAT on Overseas Purchases
If you purchase goods from abroad:
For goods from the EU or beyond, VAT is typically charged at the point of import, often via a VAT postponement system or import VAT.
You can usually reclaim import VAT in the same way as domestic VAT, provided the goods are for business use and you have the proper paperwork (e.g., a C79 certificate from HMRC).
For services from overseas suppliers, you often apply reverse charge VAT, which means you account for VAT as both output and input — effectively cancelling each other out if the purchase is for business use.
How Do You Actually Reclaim VAT?
VAT is reclaimed through your VAT return. If the VAT you’ve paid on business purchases (input VAT) exceeds the VAT you’ve collected from customers (output VAT), you’re due a refund from HMRC.
Steps:
Keep proper VAT invoices for every transaction.
Record VAT on purchases in your accounting records.
Complete your VAT return — usually quarterly.
Enter the total VAT reclaimable in the relevant box (typically Box 4) of the VAT return.
If your input VAT is higher than output VAT, HMRC pays you the difference, usually within 10 working days of submitting your return.
What Makes an Invoice Valid for VAT?
You can’t reclaim VAT unless the invoice is valid. It must include:
Supplier’s name, address, and VAT number
Your business name and address
Invoice date
VAT amount charged
A clear description of goods/services supplied
If the invoice doesn’t show VAT or the supplier isn’t VAT registered, you cannot reclaim anything.
What About VAT on Pre-Registration Purchases?
If you buy goods or services before registering for VAT, you can sometimes reclaim that VAT — but there are limits:
Goods: You can reclaim VAT on goods bought up to 4 years before registration, provided they’re still in use in the business when you register.
Services: You can reclaim VAT on services bought up to 6 months before registration.
This applies to things like equipment, stock, or setup costs incurred before becoming VAT registered.
Can You Reclaim VAT on Bad Debts?
Yes. If you’ve charged VAT on an invoice but haven’t been paid, you can reclaim that VAT through the bad debt relief process — provided:
The debt is over 6 months old, and
You’ve written it off in your accounting records.
Common Mistakes When Reclaiming VAT
Trying to reclaim VAT on client entertainment.
Reclaiming VAT without a valid invoice.
Incorrectly claiming VAT on vehicles used for personal travel.
Forgetting to apply the fuel scale charge when there’s private mileage.
Getting VAT wrong can lead to penalties if HMRC carries out a compliance check.
Conclusion
Reclaiming VAT is a valuable part of managing cash flow for VAT-registered businesses, but it comes with rules and restrictions. As long as the purchase is for business use, properly documented, and falls within HMRC’s criteria, VAT can usually be reclaimed without issue.
Understanding the nuances — especially around mixed-use items, vehicles, and overseas purchases — helps keep your VAT claims accurate and avoids problems down the line.
