Find out what expenses you can claim VAT in our video – or read about it below.
What expenses can I claim VAT on?
If you are VAT registered, you can usually reclaim the VAT paid on goods and services purchased for use in your business.
To reclaim the VAT, you should get a purchase invoice that clearly states the amount of VAT included. It will also state the supplier’s VAT registration number. You can’t reclaim VAT if the supplier isn’t VAT registered themselves.
The rate of VAT you reclaim will depend on the purchase or service you buy. Most things are at a standard VAT rate of 20%, but there are some tricky areas.
Travel & subsistence
You can reclaim the VAT on any travel, accommodation costs and business subsistence such as food and drinks purchased for yourself as a director or for any employees. Remember, travel from your home to your usual place of work is not a business expense and most public transport is zero rated.
It can become quite complicated distinguishing what food products are Zero rated and which are Standard rates. A good way to remember is most Hot food bought in a restaurant is standard rate, whilst cold food such as a sandwich is Zero rated. However, there are some exceptions such as a bottle of water is standard rate, so I would recommend asking your accountant or HMRC to check any VAT-able items you purchase. The invoice should also clearly state the VAT included.
If you buy a new car within the company you can’t reclaim VAT. The exception is only if it is used 100% for business purposes. The car must not be available for private use and this must be stated in your employment contract. Remember travelling from home to your normal place of work is classed as private use. Therefore, it is rare to reclaim the VAT.
However, you can reclaim the VAT if your business is:
- A taxi driver
- A driving instructor
- Self-drive hire
If you lease a car you can usually reclaim 50% of the VAT or 100% if the car is used purely for business purposes and not available for private use.
If you hire a car you can reclaim all the VAT as long as you hire it for less than 10 days, its used only for business and not available for private use.
You can also reclaim VAT on business related maintenance or accessories added to the car.
For business cars you can either reclaim the VAT on fuel for business trips and keep a detailed mileage record or reclaim all the VAT and pay the right fuel scale charge for your vehicle.
Reduced Rate VAT
Some examples of reduced rate VAT include:
- Electricity and Gas for domestic use
- Mobility aids for disabled people
Electricity and Gas for domestic use is charged at a reduced rate of 5%, whilst fuel for business use is charged at standard rate.
Some items are exempt from VAT, and therefore you won’t be able to reclaim the VAT on these. These include:
- Insurance and finance
- Education and training
- Professional Subscriptions
Zero rated VAT
Some items are Zero rated and therefore you can’t reclaim VAT on these products. Examples include:
- Children’s clothes
- Most food
What else can’t I reclaim VAT on?
- You can’t reclaim VAT on private use purchases
- Business entertainment costs
- Imported goods from other EU countries, instead you may be able to reclaim VAT charged under the electronic cross border refund system
- Business assets that are transferred to you as a going concern
If a purchase is for both private and personal use you can only reclaim the business proportion of the VAT.
For example, if you spend £40 a month on internet costs, but only half of this relates to business usage. You can only reclaim 50% of the VAT on these costs.
Can I reclaim VAT on purchases made before registration?
You can also reclaim VAT paid before you became VAT registered. The time limit is 4 years for goods you still have, or that were used to make other goods you still have and 6 months for services.
Legally, you need to keep a record of any receipts to support your claim. These records must be kept for a minimum of 6 years. We recommend using a software such as Receipt Bank for this, which is HMRC approved. For more information on reclaiming expenses visit www.gov.uk.
How do I reclaim VAT?
You can reclaim VAT on your VAT return. Please see our video ‘How do I file a VAT return’ for more information.
VAT is a complex tax and there are lots of tricky areas. A famous example is the court case over whether a Jaffa Cake is a cake or a biscuit? There is no VAT on cakes. However, there is VAT on a chocolate biscuit as this is seen as a luxury item.
McVities classified Jaffa Cakes as a cake, not a biscuit and therefore did not include VAT on their sales. The taxman tried to challenge this claiming Jaffa Cakes were in fact a biscuit and therefore standard rate VAT should be applied.
So how did the court come to a decision? Well, the main argument was to do with what happens to biscuits or cakes when they go stale. As you may know when biscuits are left exposed to air they go softer. However, when a cake goes stale they go hard.
So, the test was done, and when the Jaffa Cakes were left exposed to air they went hard. Therefore, the court ruled in McVities favour and therefore Jaffa Cakes do not have VAT on!
So, as you can see there are lots of complexities to VAT.
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