Claiming Tax Back On Invoices

If you run a business in the UK and you make sales, you don’t charge VAT to your customers unless you’re registered with HMRC to do so. Sales on which VAT would normally be charged are called “taxable sales”. Sales that are exempt from VAT, or outside the scope of UK VAT, are not taxable sales.

At present you only have to register your business if its annual taxable sales are over the limit set by HMRC which, as of April 1st 2016, is £85,000.

HMRC refers to all sales invoices that contain VAT as “VAT invoices”. If you are VAT registered in the UK, you should always be able to reclaim VAT on these purchases.

What You Can And Can’t Reclaim

You can usually reclaim the VAT paid on goods and services purchased for use in your business.

If a purchase is also for personal or private use, you can only reclaim the business proportion of the VAT.

Examples

Half of your mobile phone calls are private. You can reclaim 50% of the VAT on the purchase price and the service plan. If 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.

What You Can’t Reclaim

You can’t reclaim VAT for:

  • anything that’s only for private use
  • goods and services your business uses to make VAT-exempt supplies
  • business entertainment costs
  • anything you’ve bought from other EU countries (you may be able to reclaim VAT charged under the electronic cross-border refund system)
  • goods sold to you under one of the VAT second-hand margin schemes
  • business assets that are transferred to you as a going concern

Purchases Before Registration

You may be able to reclaim VAT paid on goods or services bought before you registered for VAT if the purchases were made within certain time limits.

Partly Exempt Businesses

You need to make separate calculations for purchases that relate to both VAT-exempt and taxable supplies, eg phone bills or accountancy fees.

Business Assets Of £50,000 And More

There are special rules for reclaiming VAT for:

  • individual computers and single pieces of computer equipment costing £50,000 or more before VAT
  • aircraft, ships and boats costing £50,000 or more before VAT
  • land and buildings costing £250,000 or more before VAT

You may need to adjust the amount of VAT you reclaim over several years using the Capital Goods Scheme.

How Businesses Can Reclaim VAT Paid In Other EU Countries

VAT-registered businesses can use the VAT refund scheme to reclaim the VAT on business expenses incurred elsewhere in the EU. In order to qualify the British business must:

Make taxable supplies

Not be VAT-registered in the other EU country, nor be required to register for VAT there

Not hold a place of business or residence in the other EU country

Not make any supplies in the other EU country, except for transport services that are intended for the transport of goods and where the business’s customer pays VAT on the supplies

Assuming a UK business is VAT-registered and meets these other qualifying conditions, it can apply for a VAT refund by logging into (or registering for) HMRC’s online VAT portal.

How Your VAT Refund Is Repaid

Log in to your HM Revenue and Customs (HMRC) online account to view any VAT refund you’re owed. Claim by submitting your VAT Return.

You need to give your account details to HMRC – even if you’ve already set up a direct debit for VAT Returns. Add or change them by going to the registration details in your VAT online account.

You will usually get your refund within 10 days of HMRC receiving your return but it may take longer. Only contact HMRC if you haven’t heard anything after 30 days.

All invoices entered on EU VAT Refund claims must be expressed in the currency of the Member State of Refund or the claim will be rejected by that Member State. If a claim is to a Member State where the Euro is not the national currency and a business has invoices that are in Euros they must be converted. The exchange rate used should be as on the date of the invoice as provided by the European Central Bank (ECB).