As a business, you are generally able to claim back the VAT you have paid on purchases of goods and services for your business. This is known as a VAT refund. If you have purchased items which also serve a private use, you may only claim part of the VAT back. Say you have a mobile phone that you use for both your professional calls and private calls: if 60% of your calls are business-related, you may reclaim 60% of the VAT on your mobile phone plan.
You may only claim back the VAT that applies to purchases for VAT taxable business purposes. This excludes things like business entertaining – many companies will take clients out for lunch, for example, which comes under this category. The VAT you pay on a restaurant meal for a client would not come under reclaimable input tax. There are other instances where you may not be able to reclaim VAT, such as for:
- goods and services used by your business to make VAT-exempt supplies
- items purchased from an EU country
- business assets transferred to you as a going concern
- goods and services for private use.
The Claims Process
Reclaiming your VAT is straightforward. When you submit your VAT return, enter the total amount of VAT charged, and the total amount of VAT paid. If you are owed money from HMRC, this amount is shown. Then, provide your account details on your VAT online account. If HMRC owes you any money in tax, you will receive your VAT refund usually within 30 days of submitting your return (if HMRC does not have your bank details, they may send you a cheque, known as a payable order).
Be sure that your suppliers provide you with a valid VAT invoice, and don’t try to claim back VAT on any invoices that may not be valid. If in doubt, it is worth seeking the advice of an accountant before claiming, to save you from any surprises from the tax inspector.
For Purchases a VAT Receipt is Essential
To claim back VAT from a purchase, you must have a valid VAT receipt from your supplier. This serves as proof of the purchase and shows that you have paid your input VAT on that transaction. Without a valid VAT receipt, you cannot claim any tax back.
Many suppliers provide VAT receipts which are invalid, missing crucial information. Delivery notes, email confirmations or letters do not qualify as valid VAT receipts. Just like VAT invoices, valid VAT receipts must include:
- A unique invoice number
- The name and address of the seller
- The seller’s VAT registration number
- The date of the invoice
- The date of supply, otherwise known as the tax point
- Your name and address
- A description of the goods or services supplied to you.
VAT invoices and receipts serve as your proof for your input and output tax figures. Once you’ve got these, you can claim back your VAT. These invoices and receipts can be stored in an electronic format.
Claiming VAT on Bad Debts
If you have paid VAT to HMRC and subsequently not received payment from a customer, you can reclaim the VAT, provided it’s a ‘bad debt’ – one that you have written off. To qualify for VAT bad debt relief:
- the debt must be more than six months old but less than four years and six months old
- you must not have sold the debt on
- you must not have charged more than the regular price for the item in question.
You should add any bad debts to the figure in box 4 on your VAT return to reclaim them. If the debt is then paid, you must pay the relief back to HMRC by adding the amount to the figure in box 1 on your VAT return for that period.
Reclaiming Historic VAT
It is possible to claim for VAT that you have paid before your VAT registration date. However, there are independent limits that apply to goods and services, respectively. In both cases, you are required to have VAT invoices. The VAT element you try to recover must represent the amount shown on the invoices, and not the current rate of VAT.
Goods
You may reclaim VAT on any goods that you purchased within the four years prior to your VAT registration if all the following conditions apply:
- The items were bought by your company, now VAT-registered
- The items are for your VAT taxable business purposes
- You still hold the items, or they were used to make other goods that you still hold.
Make a particular note of the second condition. If the items are used in part of the business which is VAT exempt, you may not reclaim VAT. HMRC recommends that companies take a stock-check at the point of VAT registration, and keep details of the expiration of purchased goods.
Services
For services, you may backdate only six months. The following conditions must be true of the services you paid for in this six-month period:
- The services were bought by your company, now VAT-registered
- The services were for your VAT taxable business purposes.
Services for which you can reclaim VAT may include accountancy fees or fees for legal advice, which is often the case for new businesses.
Claiming Interest on Errors
If an error on the part of HMRC results in your business paying too much VAT, underclaiming VAT or prevents you from recovering VAT at the correct time, your business can claim interest. This interest is claimable on the duration of time you have been unable to use the money. Claims must be by made in writing, addressed to the VAT Written Enquiries team, who will consider each case. If your business has a nominated contact in HMRC, then you should direct the claim to them.
