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A quick guide to VAT returns for small businesses

Struggling with VAT? We make it so simple, you can claim your VAT refund in 60 minutes.

Luckily for VAT-registered small businesses like yours, it’s possible to reclaim VAT on all goods and services your business pays for.

This means you can get the same goods and services for 20% less.

To do so, you must first buy these goods and services as normal and then claim back the VAT when submitting your VAT returns to HM Revenue & Customs (HMRC). Doing so is far from straightforward though, with various exceptions to which type of items you can claim for, as well as different rules regarding the amount of VAT you can claim back.

Adsum is here to help, with this guide to claiming back VAT clearing up any confusion around the topic. We can also help you avoid any delays to VAT refunds with our Instant VAT Refunds service, seeing as this can take almost a month ordinarily.

Instant VAT

Who can claim back VAT?

Only VAT-registered companies can claim back VAT.

All businesses with a turnover of £85,000 need to register for VAT, although all companies can do so voluntarily if their turnover is below this amount.

After registering for VAT, you’ll need to charge it on all the goods and services you sell, and then claim it back on the expenses your business runs up.

How do I claim back VAT?

You claim back VAT when submitting your VAT returns throughout the year.

Most small businesses do so quarterly and must submit these returns within one month and seven days of the relevant tax period.

As we’ll explore later on, you’ll need to show proof that you’ve paid VAT to claim it back. By completing your VAT return online with the relevant proof, HMRC will calculate your refund amount and pay this back to you within 30 days.

How much VAT can you claim back?

Generally speaking, you can reclaim 100% VAT for products and services used solely for business purposes, though there are exceptions to this.

In contrast, you can’t claim back VAT on products and services used entirely for personal use. However, it is possible to do so for those used for personal and business use simultaneously.

So, say you run a home-based business, you can claim back a certain amount of VAT on services like utilities and broadband. For instance, if your business uses half the household’s broadband and your home office comprises one-fifth of your home, you can claim back 50% of the VAT on the broadband costs, and 20% of the VAT charged on utility bills. Please note it’s worth reaching out to HMRC in advance about the exact apportionments to reduce the chance of compliance checks.

What can I claim VAT on?

As touched upon earlier, there are only certain types of items you can claim back VAT on — we’ve outlined these below.

Can I claim back VAT on previous costs?

Fortunately, for small businesses registering for VAT for the first time, you can claim back previously incurred VAT costs. That said, you only get one chance to do so, and there are restrictions. The only items you can claim are:
Can I claim back VAT on previous costs?

Capital expenses

You can claim back VAT on capital expenses bought within the previous four years before the date of VAT registration. Examples include things like laptops, vehicles and machinery. The goods must either still be owned and used by your company, or have been used to create a new product you still own and use.

Can I claim back VAT on previous costs?

Services

Your business can claim back VAT on services like bookkeeping and legal advice that you’ve bought in the previous six months from the date of VAT registration.

Can I reclaim VAT on travel and food?

You can claim back VAT on travel costs where this travel was solely for business purposes, such as attending a client meeting or going to an industry event. This includes VAT charged on travel, hot food and accommodation. That said, most public transport is zero-rated for VAT, meaning that there won’t be anything to claim back. VAT also can’t be claimed on travel costs to and from your place of work.

Can I reclaim VAT on vehicles?

Your business can reclaim VAT paid on a new vehicle purchase, whether it is a commercial vehicle like a van or an executive car. Like with travel costs, the vehicle must have been used solely and exclusively for business purposes, and you need to prove to HMRC that the vehicle isn’t available for personal use, like by parking it overnight in a secured garage joined to your office. For leased vehicles, you can claim back 100% of the VAT if it’s been used exclusively for business purposes, or 50% if it’s been used personally too. You may also be able to get a VAT refund on cars leased as driving instruction vehicles or taxis. In addition to the cost of the vehicles themselves, you can claim total VAT repayments on VAT-rated vehicle maintenance expenses.

Can I reclaim VAT on fuel?

When it comes to fuel, you can claim back the full amount of VAT paid on it if you only use the vehicle for business purposes.

If you use a vehicle for both business and personal use, you can either:

  • Reclaim the full VAT amount and pay a fuel scale charge related to your type of vehicle. Check out the government’s Fuel Scale Charge to work out the cost.
  • Only reclaim the VAT on fuel for business purposes — this requires keeping detailed mileage records.

You may decide not to reclaim any VAT at all — for instance, if your company mileage is so low that the fuel scale charge would be higher than the VAT refund you’d receive. In this scenario, you can’t reclaim VAT on fuel for any other vehicles used by your business.

What can’t I reclaim VAT on?

You can’t reclaim VAT on:

  • Anything that’s exclusively for personal use
  • Goods and services your business uses to make VAT-exempt supplies
  • The cost of entertaining people you do business with — such as a meal at a restaurant or a round of golf.
  • Goods sold to your business under a VAT second-hand margin scheme
  • Business assets that are transferred to you as a going concern

How should I keep VAT records?

Good record keeping is crucial for successfully being able to reclaim VAT. You need to be able to show the amount you’ve paid, either through:
How should I keep VAT records?

VAT invoices

VAT invoices are documents that show the VAT rate and the amount you’ve paid on particular goods and services.

How should I keep VAT records?

Retail receipts

Retail receipts may not necessarily include VAT, however, they can still be used as evidence if the purchase was less than £250. You’ll need to work out and submit the VAT total.

How should I keep VAT records?

Transaction proof

You may be able to claim VAT if you have proof of purchase other than a receipt, like a bank statement, provided you can prove that the product or service was solely for business use.

How can Adsum help me claim back VAT?

Although knowing the above information will help you get your VAT payments refunded, it may not prevent you from having to wait for these funds.

While HMRC aims to repay VAT within five days, this process can take up to 30 days, causing substantial financial uncertainty for businesses.

Fortunately, with Adsum’s Instant VAT service, small businesses like yours can obtain these funds in just 60 minutes. Charging only 3% of the refund amount, our service is also very easy and quick to use. Here’s how it works:

  1. Create an Adsum account – Signing up doesn’t take long — you just need to input your details, tell us where to send your VAT refund to and give us access to your government gateway.
  2. Submit your VAT return – You or your accountant send off your VAT return as you would do ordinarily.
  3. Get your VAT refund in 60 minutes – It is that easy.

Use our Instant VAT Refund service today and claim back VAT nearly instantaneously.

Understanding VAT

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