How to Reclaim VAT on Business Purchases
Guide to correctly reclaiming VAT on your business purchases, including what qualifies and record-keeping requirements.
What You'll Need
- Valid VAT invoices
- Accounting software
- VAT registration
- Knowledge of VAT rules
Step-by-Step Guide
Understand what VAT you can reclaim
You can reclaim VAT on goods and services bought for your business, provided they're used for VAT-able supplies.
- •Must be for business use
- •Personal use items don't qualify
- •Partial reclaim if mixed use
Obtain valid VAT invoices
To reclaim VAT, you need a valid VAT invoice showing supplier's VAT number, date, goods description, and VAT amount.
- •Under £250: simplified invoice OK
- •Over £250: need full VAT invoice
- •Credit card receipts often aren't valid
Check the VAT is correctly charged
Verify the supplier is VAT registered and has charged the correct rate. Standard rate is 20%, some items are 5% or 0%.
- •Can verify VAT numbers on EU VIES or HMRC
- •Some supplies are exempt (no VAT)
- •Check rate matches goods/service
Record purchases in accounting software
Enter each purchase with the correct VAT code. Ensure VAT amount matches the invoice exactly.
- •Use correct VAT code
- •Check VAT calculates correctly
- •Reconcile regularly
Know what you can't reclaim
Some VAT is blocked: business entertainment, cars (unless certain conditions), non-business items.
- •Client entertainment: no VAT reclaim
- •Staff entertainment: can reclaim
- •Cars: complex rules apply
Include in your VAT return
Reclaimable VAT goes in Box 4 of your VAT return. Net this against VAT you've charged (Box 1).
- •Box 5 shows net position
- •May result in VAT refund
- •Claim in correct period
Keep records for 6 years
Retain all VAT invoices and purchase records for at least 6 years. HMRC may inspect these.
- •Digital copies acceptable
- •Organize by period
- •Store securely
Common Mistakes to Avoid
Claiming without valid VAT invoice
Reclaiming VAT on entertainment
Wrong VAT period claimed
Not keeping invoices for 6 years
Frequently Asked Questions
What purchases can I reclaim VAT on?
You can reclaim VAT on goods and services purchased solely for business use, provided you have a valid VAT invoice. Common claims include office equipment, software subscriptions, professional services, and business travel. Items with mixed personal and business use require apportionment.
Can I reclaim VAT on purchases made before VAT registration?
Yes, you can reclaim VAT on goods purchased up to 4 years before registration (if still held) and services purchased up to 6 months before registration. You must have valid VAT invoices for all pre-registration claims. This is done on your first VAT return.
What is a valid VAT invoice?
A valid VAT invoice must include the supplier's name, address and VAT number, a unique invoice number, the date, a description of goods or services, the VAT rate, and the VAT amount. Without a valid invoice, HMRC can disallow your input VAT claim.
Can I reclaim VAT on staff entertainment?
Generally no. VAT on business entertainment (meals, events, gifts for clients) is blocked and cannot be reclaimed. However, VAT on staff entertainment such as a Christmas party for employees can be reclaimed, provided it is available to all staff and not just directors.
How do I handle VAT on mixed-use purchases?
For items used partly for business and partly for personal use, you can only reclaim the business proportion of the VAT. You must apply a fair and reasonable method of apportionment and keep records showing how you calculated the split. HMRC may challenge unreasonable apportionments.
Let AccountsOS handle this for you
Our AI-powered platform automates your accounting and guides you through every step. No more guesswork.
Get Started FreeFree during Early Access - No credit card required