This detailed guide will explain how to claim VAT back in accordance with the HMRC regulations.
Who Can Claim VAT?
VAT-registered businesses can claim VAT on their business expenses. If your company has an annual revenue of £85,000 or more, you are required to register. However, if your small business earns less than that, you can still register voluntarily.
Once registered, you must charge VAT on the goods and services you offer. If everything you sell is VAT-free, you do not need to register for VAT.
If you’re unsure whether you should register for VAT or not, have a look at the HMRC guidelines.
VAT Claim Process
The first step is to register for VAT online. Once you’ve registered, you can charge and reclaim VAT from the date of registration in your VAT return. Businesses must have legitimate VAT invoices for their purchases. These invoices serve as proof of the VAT paid for your VAT return. Valid VAT receipts as evidence of input VAT include:
- The supplier’s name and VAT registration number.
- The date of purchase.
- A description of the goods or services.
- The amount of VAT charged.
- The total amount including VAT.
For a full list of requirements for valid VAT invoices, have a look at the HMRC’s detailed rules. These records are important to keep as support to claim back VAT. When submitting VAT returns, you can then offset the input VAT against the output VAT.
VAT-registered firms can claim by submitting their VAT return to HMRC every quarter. The VAT refund is calculated by deducting the amount of VAT charged on sales from the amount of VAT paid on eligible business costs.
Exempt and Taxable Goods
Exempt goods and services are not subject to VAT. You can’t claim back VAT on exchanges related to exempt goods. An example of this is insurance. Taxable goods and services are subject to VAT, allowing businesses to reclaim VAT paid.
Your business can become categorized as partially exempt, as well. This is if your business has both exempt and taxable activities. Reclaiming VAT based only on your taxable activities is the expectation in this case.
For partial exemption, the HMRC has methods to calculate how much VAT you can reclaim. It’s important to determine the correct VAT split between taxable and exempt activities. Calculating the business proportion that is subject to VAT ensures that you can claim back VAT accurately.
Vehicles and Fuel
You may be able to reclaim VAT on a vehicle if it is solely for business use.
If you purchase a used car, the sales invoice must include the VAT on the purchase price. If you rent a car to replace one that is no longer in service, you can usually claim back VAT to the tune of 50% of the hiring amount. If you lease a car for business purposes alone, you can reclaim full VAT if you only use it for ten days.
If you use a commercial vehicle for business trips, you can reclaim all of the VAT spent on fuel.
If you use the car for personal and business reasons, it’s slightly different.
You can reclaim VAT costs and pay the right fuel scale charge for your car, or only reclaim VAT on fuel used for business travel. In this case, you need accurate proof of business mileage before reclaiming VAT. You can also choose not to claim any VAT. However, you cannot reclaim VAT on any fuel for cars used by your business if you opt not to do so on one vehicle.
VAT Flat Rate Scheme
The Flat Rate Scheme requires you to pay HMRC a set rate of VAT. The difference between the amount you charge your clients and the amount you pay to HMRC is yours to keep. Reclaiming VAT on purchases is not allowed unless the assets are more expensive than £2,000. To be eligible for the program, your VAT turnover should be less than £150,000 (minus VAT).
Make an application to HMRC for this. It’s best for your VAT-registered business if you talk to a financial advisor before making this decision.
Claiming VAT doesn’t have to be so confusing. Once you adhere to these guidelines, you’ll be well on your way to efficient business operations. Speak to a financial advisor or accountant if you’re unsure.