What VAT can I claim back?

A few years back when I was training, a client asked me this question. Knowing VAT can be a complex area, yet wishing to appear helpful and decisive, I responded they should claim back VAT on everything and we would clear any errors when they sent us their books at the end of the Quarter. What I hadn’t bargained for was them taking me at my word, quite literally. When we received the books the client had claimed back VAT on everything. Aside from claiming back VAT on all their materials, printing & stationery costs which was fine, they had also claimed back VAT on insurance, postages, wages, PAYE payments, they had even claimed back VAT on the previous Quarter’s VAT payment to HMRC ! Oh well, you live and learn. I am now much more careful what information I give out to clients.

What You Need to Know

The short answer is that you may claim back VAT on all items for which you hold a valid VAT receipt. A full valid VAT receipt will contain:

  • suppliers name and address
  • the customer’s name and address
  • the date (or tax point)
  • a brief description of the good/services supplied
  • the net amount for goods and/or services before VAT is added
  • the VAT charge (currently at 20%)
  • the total or gross amount which contains the VAT
  • plus of course the traders VAT registered number.

However, most VAT receipts will be a shortened version of the above. For example, goods purchased from most retailers may simply have the total amount, the retailers name and the retailer’s VAT number. In this circumstance, you should extract the VAT contained within the bill, by multiplying the total by 20/120, and reclaim this amount on your VAT Return. A golden rule, if the receipts does not state a VAT number then you may not claim back VAT on that bill.

5 expenses that will definitely NOT contain VAT

  • Insurance
  • salaries & wages
  • PAYE
  • Postage
  • bank interest paid

Further, HMRC do not allow VAT to be reclaimed on entertaining and you should consider carefully when claiming back VAT on fuel for cars. If you reclaim fuel on cars then you must also add a fuel scale charge each quarter. For a VW Golf 1.4 that emits an average 175 grams of CO2 you will need to add £69.58 to your output (sales) vat each quarter. So, if you do not spend £417.50 on fuel each quarter, or £139 per month, then you will be out of pocket, simple as that.

If you are unsure whether you may reclaim vat on a particular expense, then please ask us.

Please remember, HMRC may seek to disallow all VAT claimed where a valid VAT receipt is not held. It is your responsibility to obtain one.

Tony Mann – Manager

Westbury Accountants and Business Advisors is an accountancy practice based in London. Westbury have been providing Accounting and Tax solutions to small and medium sized businesses since 1936. Talk to the team at Westbury on 0207 253 7272 or visit http://www.westbury.co.uk.