How to claim VAT back as a small business
If you are VAT registered, you probably spend a lot of time thinking about the 20% you have to add to your invoices. It can feel like you are just acting as an unpaid tax collector for the government.
But there is a major benefit: The Reclaim. When your business buys things - like a new laptop, materials for a job, or even the software you use to send those invoices - you are often paying VAT to your suppliers. As a registered business, you have a legal right to get that money back.
The Golden Rule: You can only reclaim VAT if you actually paid it in the first place.
The "Two-Way Street" Rule
Think of VAT as a balance scale. On one side is the VAT you collect from customers (this is money you owe HMRC). On the other side is the VAT you pay to other businesses (this is money HMRC owes you).
At the end of your VAT period, you only pay HMRC the difference. If you spent more on VAT-able business costs than you made in sales that month, HMRC actually owes you a refund.
Crucial: Not Every Receipt Has VAT
This is where many business owners get caught out. You cannot simply look at the "Total" on a receipt and calculate 20% of it. You can only claim the VAT if:
- The supplier is VAT registered: If you buy from a small local shop or a freelancer who isn't VAT registered, they won't charge you VAT. If they didn't charge it, you can't claim it.
- The item isn't Exempt or Zero-Rated: Some things, like most insurance, stamps, or certain types of public transport, don't have VAT on them at all.
Pro Tip: Always look at your receipt for a VAT Registration Number. If that number isn't there, the supplier hasn't charged you VAT, and you cannot include it in your claim.
What Can You Actually Claim For?
Most things you buy purely to keep your business running are fair game, provided there was VAT on the invoice. Common reclaims include:
| Expense Category | Common Examples |
|---|---|
| Office & Tech | Laptops, phones, furniture, and stationery. |
| Professional Fees | Accountancy fees, legal advice, and marketing costs. |
| Utilities | A portion of your phone bill, internet, and business electricity. |
| Travel | Train tickets or fuel for business trips. |
| Entertainment | Taking a client to lunch (Note: Reclaiming VAT here is usually blocked). |
The "Backdating" Bonus
Did you know you can often claim for things you bought before you even registered for VAT? This can be a huge cash injection for new businesses:
- For Goods: You can go back up to 4 years, provided you still have the items (like tools or equipment).
- For Services: You can go back 6 months (like your initial setup costs or rent).
- The Catch: You must have the original VAT invoice showing exactly how much VAT was paid at the time.
The Golden Rules of Reclaiming
To make sure your refund doesn't get rejected by HMRC, keep these three things in mind:
1. Check the Invoice
Before you file, double-check that the invoice actually shows a VAT amount. If it just shows a total price with no VAT breakdown, you need to ask the supplier for a proper VAT invoice.
2. Watch Out for "Dual Use"
If you buy a laptop that you use 50% for work and 50% for personal use, you can only claim 50% of the VAT back. It is important to be honest about this split.
3. Go Digital
Don't let receipts fade in a shoebox. Using an app like Dext or Hubdoc to snap a photo of your invoices the second you get them ensures you never miss a penny. These tools pull the data automatically and sync it with your accounting software, saving you hours of manual entry.
The Bottom Line: Reclaiming VAT is about protecting your cash flow. Every pound you don't reclaim is a pound straight out of your pocket. If you aren't sure whether a receipt has VAT on it, just ask our team.
Disclaimer: This post is intended for educational purposes and does not constitute formal tax or financial advice. VAT rules can be complex and vary based on your specific industry. For expert guidance, please contact the team at Excel Accountancy.