# How to Reclaim VAT on Business Purchases

Last updated: 11 January 2025
Time to complete: 30 minutes
Difficulty: Easy

Guide to correctly reclaiming VAT on your business purchases, including what qualifies and record-keeping requirements.

## What you need

- Valid VAT invoices
- Accounting software
- VAT registration
- Knowledge of VAT rules

## Steps

### 1. 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.

Tips:

- Must be for business use
- Personal use items don't qualify
- Partial reclaim if mixed use

### 2. Obtain valid VAT invoices

To reclaim VAT, you need a valid VAT invoice showing supplier's VAT number, date, goods description, and VAT amount.

Tips:

- Under £250: simplified invoice OK
- Over £250: need full VAT invoice
- Credit card receipts often aren't valid

### 3. 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%.

Tips:

- Can verify VAT numbers on EU VIES or HMRC
- Some supplies are exempt (no VAT)
- Check rate matches goods/service

### 4. Record purchases in accounting software

Enter each purchase with the correct VAT code. Ensure VAT amount matches the invoice exactly.

Tips:

- Use correct VAT code
- Check VAT calculates correctly
- Reconcile regularly

### 5. Know what you can't reclaim

Some VAT is blocked: business entertainment, cars (unless certain conditions), non-business items.

Tips:

- Client entertainment: no VAT reclaim
- Staff entertainment: can reclaim
- Cars: complex rules apply

### 6. Include in your VAT return

Reclaimable VAT goes in Box 4 of your VAT return. Net this against VAT you've charged (Box 1).

Tips:

- Box 5 shows net position
- May result in VAT refund
- Claim in correct period

### 7. Keep records for 6 years

Retain all VAT invoices and purchase records for at least 6 years. HMRC may inspect these.

Tips:

- 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.

## Related how-to guides

- [How to File a VAT Return](https://accounts-os.com/how-to/file-vat-return)
- [How to Register for VAT in the UK](https://accounts-os.com/how-to/register-for-vat)