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How to claim back VAT as a small business

In the United Kingdom, VAT (value-added tax) is a surcharge applied to most goods and services, and it is currently set at 20%. If you’re registered for VAT, regardless of how large or small your business is, you can claim back VAT as a small business expense. Accounting for VAT and reclaiming it is notoriously fiddly and time-consuming, but the financial rewards more than justify the effort, even when you hire an accountant. Read on for more information.

Who is eligible to claim the VAT back?

VAT can only be claim back VAT as a small business. If your turnover is below £85,000, you may opt to register voluntarily. However, businesses with a turnover of less than £85,000 must register.

You will have to charge VAT when you sell goods and services, but you can also claim it back when you incur business expenses.

How can VAT be reclaimed?

Only expenses specifically associated with your business are eligible for VAT reimbursement. You can claim the following goods and services:

  • Work laptops, software, and maintenance services for IT equipment.
  • Office supplies, such as printer ink and paper.
  • Expenses for the premises, such as rent, insurance, and security.
  • Buying items for resale or purchasing raw materials to produce items represents stock
  • Management services, such as legal and financial advice, are indispensable for your claim back VAT as a small business to function.
  • Promotion – advertising, samples, etc.
  • Personnel – salaries, bonuses, benefits, pension contributions, etc.
  • Travel expenses – costs incurred during business trips for travel, hotels, food, etc.

Additionally, you can claim back VAT on purchases made before registering, but you can only do this once and the amount you can claim is limited. In the case of capital expenses, otherwise known as goods your business uses, you can claim purchases made four years before you registered as long as these goods are still in use. The only services you will be able to claim for are those you used and paid for up to six months before registering.

Is it possible to reclaim VAT on business fuel and vehicles?

When buying or leasing a car, van, or truck for business use, you can claim back the VAT you paid on it. If you use fuel for business travel, you can claim back the VAT you paid on it as well.

When you use the vehicle for business and personal purposes, the rules are more complicated. For instance, you can claim the entire VAT, but you would have to pay a fuel scale charge based on the carbon emissions of the vehicle. You might find it more cost-effective, however, to pay the VAT if you do relatively low mileage and the fuel scale charge is high for your vehicle.

Reclaiming VAT as a business

HMRC requires you to submit a VAT return every three months in order to claim your refunds. Besides showing the VAT you’ve paid, you’ll also need to show the VAT you’ve charged customers.

For HMRC to verify that you’re being honest, you’ll need to provide proof that you bought the goods and services and charged VAT on the ones you sold.

You can provide the following proof of purchase:

  • VAT invoices that are valid
  • Include a receipt from the retailer

When you don’t have a receipt, you may still be able to claim back VAT by proving the transaction in another way, such as with a bank statement. You’ll also need to prove that the transaction was for business purposes.

Is an accountant able to help me reclaim VAT?

When it comes to reclaiming VAT, there are a few pitfalls to avoid. There can be challenges in proving that the goods and services are for claim back VAT as a small business purposes. If you’re going to use them for personal purposes as well, it can be even trickier – for example, how do you figure out the correct VAT split on WiFi costs if you work from home? A common issue is finding an invalid VAT invoice from a supplier, as it won’t be able to be used for your claim. Additionally, you must ensure that your VAT invoices are valid so that your business customers can claim their VAT.

With an accountant on hand, you won’t have to worry about getting all these aspects correct – they will ensure everything is in order. Your accountant can also do the legwork of filing your taxes, so you can focus on running your business.

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