Charge, reclaim and record VAT
Reclaim VAT on business expenses
You can reclaim VAT on items you buy for use in your business if you’re VAT registered. Do this in your VAT return.
There are different rules if your organisation is VAT-exempt (for example, an educational academy or an eligible charity). Read guidance on reclaiming VAT as an organisation not registered for VAT (VAT126).
If any items are also for personal use, you can only claim the business proportion of the VAT.
Examples
Half of your mobile phone calls are personal. You can reclaim 50% of the VAT on the purchase price and the service plan.
You work from home and your office takes up 20% of the floor space in your house. You can reclaim 20% of the VAT on your utility bills.
You must keep records to support your claim and show how you arrived at the business proportion for a purchase. You must also have valid VAT invoices.
If you reclaim VAT on goods or services which you’ve not paid for, you must repay HMRC. This is called ‘clawback’. Read the guidance on clawback to find out when and how to repay VAT you previously reclaimed.
If you sell both taxable and exempt goods
If you sell goods or services that are a mixture of taxable and exempt from VAT, your business is considered ‘partly exempt’. Find out about partial exemption and how to calculate what you can reclaim.
Purchases before registration
You can reclaim VAT paid on goods or services bought before you registered for VAT if you bought them within:
- 4 years for goods you still have or goods that were used to make other goods you still have
- 6 months for services
You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply.
If you use the VAT Flat Rate Scheme
You cannot reclaim the VAT on your purchases - except for certain capital assets over £2,000.
Vehicles
You might be able to reclaim all the VAT on a new car or commercial vehicle if you use it only for business. You must be able to show that it is not used on a personal basis, for example it’s specified in your employee’s contract.
‘Personal use’ includes travelling between home and work, unless it’s a temporary place of work.
You might also be able to claim all the VAT on a new car if it’s mainly used:
- as a taxi
- for driving instruction
- for self-drive hire
If you buy a used car for business use, the sales invoice must show the VAT.
If you hire a car to replace a company car that’s off the road, you can usually claim 50% of the VAT on the hire charge.
If you hire a car for business use only, you can reclaim all the VAT if you hire it for no more than 10 days.
Fuel costs
There are different ways of reclaiming VAT on fuel, if you do not pay a fixed rate under the Flat Rate Scheme.
You can reclaim all the VAT on fuel if your vehicle is used only for business.
If you use the vehicle for both business and personal purposes, you can either:
- reclaim all the VAT and pay the right fuel scale charge for your vehicle
- only reclaim the VAT on fuel you use for business trips - you’ll have to keep detailed mileage records
You might choose not to reclaim any VAT, for example if your business mileage is so low that the fuel scale charge would be higher than the VAT you can reclaim.
If you choose not to reclaim VAT on fuel for one vehicle you cannot reclaim VAT on any fuel for vehicles used by your business.
Additional vehicle costs
You can usually reclaim the VAT for:
- all business-related running and maintenance costs, like repairs or off-street parking
- any accessories you’ve fitted for business use
You can do this even if you cannot reclaim VAT on the vehicle itself.
Travel expenses
You can reclaim VAT on employee travel expenses for business trips. Travel expenses can include transport, meals and accommodation that you pay for. Find out who counts as an employee.
You can reclaim VAT on other kinds of expenses (not just those related to travel) for self-employed people who are treated as employees.
You cannot reclaim VAT if you pay your employees a flat rate for expenses.
Business assets of £50,000 and more
There are special rules for reclaiming VAT in the Capital Goods Scheme, which means you must spread the initial VAT claimed over a number of years.
What you cannot reclaim
You cannot reclaim VAT for:
- anything that’s only for personal use
- goods and services your business uses to make VAT-exempt supplies
- the cost of entertaining or providing hospitality to people you do business with (for example theatre or sports tickets)
- goods sold to you under one of the VAT second-hand margin schemes
- business assets that are transferred to you as a ‘going concern’