Reclaiming VAT on your small business expenses doesn’t need to be hard. In this guide, we walk you through four easy steps to successfully reclaim VAT for your small business.
Companies who register for VAT can use the handy option to reclaim VAT on purchases related to running a business. There is a set of rules that companies must stick to in order to make sure VAT is properly calculated and documented.
Reclaiming VAT may seem like a hassle, particularly if it’s your first time. In this article we outline what documents you need, which expenses are eligible and when you need to file returns to make the process quick and easy.
Step 1: Confirm you’re eligible to reclaim VAT
First of all, you need to make sure you’re VAT-registered before you can actually submit a return. UK-based companies can register online by visiting the HMRC’s website.
Once registered, you will be given a VAT registration certificate with a VAT number. Keep this handy – you’ll need to put your VAT number on every sales invoice from the point of registering and will need the number again when it comes to submitting returns.
To submit your VAT returns online, you will also need to make sure you’re enrolled for an online account.
Step 2: Get your invoices and proofs of purchase in order
When your online account is ready, you’ll need to get your documents in order.
You need a copy of all VAT invoices and receipts, or other similar evidence, that shows items that were purchased and used by your business. You don’t need to keep paper copies of invoices and receipts—electronic versions are okay. This proof of purchase must be issued by someone who is VAT-registered and must contain all the details required by HMRC, such as your business name, address, VAT number and the date of purchase.
What if you don’t have proof of purchase, because, for example, you lost your business invoices or receipts?
There are a few minor exceptions. For example, you don’t need a receipt for purchases up to £25. Some other expenses may also need less detailed records, such as retail receipts from petrol stations, However, make sure you can show proof of purchase and that the supplier is registered for VAT if asked.
Step 3: Calculate how much VAT you can reclaim or will have to pay
If you’re registered for VAT, there is an extra level of financial scrutiny that you need to keep track of—your VAT account. It’s your own separate record of the tax you have charged on sales and that you have paid on purchases.
A VAT account is a simple running total of VAT charged throughout your business operations. Some cloud accounting software programs, like QuickBooks, can create VAT records automatically based on all eligible sales and business expenses.
By keeping a separate record of VAT on sales and purchases, you can calculate how much you owe HMRC and how much you can reclaim. If VAT paid by your business on purchases is greater than the VAT charged to customers, a repayment will be issued from HMRC. Otherwise, you will need to pay the calculated amount to the HMRC.
Note that you’ll need a slightly different format if you’re operating under the Flat Rate Scheme. Under this scheme, VAT is charged as a percentage of turnover, so you’ll need to figure out if this is higher or lower than what you actually paid and received on sales.
Step 4: Submit your VAT return online
OK, you’re all registered online, have got all your invoices organised and know how much you can reclaim (or need to pay). What’s the next step?
The next and final step is to submit your VAT returns. Note that the expenses you are claiming for must be within the VAT period which your VAT return relates. It can be a 3 month period if you’re submitting returns on a quarterly basis.
The due date for the submission of your VAT return is one month and seven days after the end of the VAT period. This deadline is the same for both monthly and quarterly submissions. For example, if the VAT period is Januray 1 to March 31, you must submit the return by May 7 for expenses incurred during the first 3 months of the year.
As a general rule of thumb, you can claim VAT on goods you bought up to four years before registering during your first VAT return, providing you still hold those goods. So this won’t include goods you have already sold prior to registering. You can claim VAT on services used by your business for up to 6 months before registering.
So now that you’re all ready, where do you submit? There’s a couple of very simple ways to do this:
Simply log into your HMRC account and submit your VAT return on HMRC’s website.
Many of the leading accounting software programs allow you to submit VAT returns directly. For example, here’s a quick guide on how to submit VAT returns with QuickBooks.
Once you’ve submitted a return it’s worth noting that payments must be made to HMRC electronically. Also, make sure to stay aware of return and payment deadlines – you can find these outlined in your VAT online account.
If you file late and you owe VAT, you’ll be charged a penalty. If you are due a refund you should receive payment within 10 business days of HMRC receiving your return. Build these deadlines into your business schedule and make reclaiming VAT a breeze.