Reclaiming VAT on expenses used by a business is not that simple as you think. There are certain conditions and guidelines you have to follow. Working out VAT and reclaiming it can be problematic, especially for one new to it, but its financial benefits are worthwhile, even if you hire an accountant for it.
Let’s dive into the details!
VAT (value-added tax) is the amount of money charged on the sale of goods and services. Currently, the standard VAT rate is 20%. Some items are exempted from it, and you may get a reduced tax rate on a few items. It is also recognized as a type of consumption tax, as it is levied on the items or services people buy or consume. It is an indirect tax that businesses collect on the government’s behalf.
Key Takeaway: Now you have to maintain VAT records digitally and need to submit your VAT returns through software.
Reclaiming VAT on Expenses of a Business:
For reclaiming VAT on expenses, you need to be VAT registered. A business earning above £85,000 need to register for VAT, however, you may register voluntarily if your turnover is below this threshold. After registering, you can charge it on the assets and services you sell and you can reclaim it on your business expenses.
What to Reclaim?
Typically, you can reclaim VAT on tax-deductible expenses that are utilized for your business. That include:
- IT tools
- Stationery items
- Business premises
- Professional Services
Key Takeaway: You may reclaim VAT (once) for the items you bought before registering VAT with certain conditions applied.
There are further complexities for reclaiming VAT on the purchase of a car and people who’re already availing of other VAT schemes, therefore we suggest you to take help from an accountant.
You are unable to Reclaim VAT if:
VAT can’t be reclaimed on:
- Things that are only for personal or private use
- Goods and services that are VAT exempt supplies
- Entertainment cost of the business
- Second-hand goods you purchased under VAT margin schemes
- Transferred Business assets to you as going concern
Now we are going to explore, “How to reclaim VAT on expenses?”
How to Reclaim VAT?
You can reclaim VAT based on your input VAT that you paid at the time of submitting your VAT returns. Therefore, you should keep a proper record to show it to HMRC as proof. HMRC may ask for a VAT invoice or retailer’s receipt or any other receipt showing the transaction.
Then, HMRC will subtract it with output VAT (VAT collected by you) and they may ask you to pay the remaining amount after the deductions.
If your input VAT exceeds your output VAT, you’d be given a repayment from VAT.
You may contact a VAT specialist for the support!
How Accountant can Help to Reclaim VAT:
Now that you know the process of reclaiming VAT on expenses used for your business. Still, there are troubles. As it is difficult to prove that the assets and services that you are using are only for business purposes. It becomes more complex if you’re using something for both business and personal use, as the rules vary. Moreover, you also need to maintain proper records to reclaim VAT.
Therefore, an accountant will accurately and efficiently handle all these tasks as per the legalities of HMRC. By this, your work-burden would be divided and you’d solely concentrate on your business.
Disclaimer: This blog is just for your general information. Hence, it should not be considered expert financial or business advice.