VAT Reclaim – what you can and cannot reclaim

For most fully taxable businesses, VAT can be reclaimed on goods and services used in the business. This means that businesses must consider where there is personal or private use of goods or services bought for the business and can usually only reclaim the business proportion of the VAT.

For example, VAT is recoverable on all the costs of mobile phones provided to employees where no personal use is allowed. Where businesses allow private calls to be made at no charge, the VAT recovery must be apportioned fairly and reasonably. Where employees pay for the private use of their phones, the business can reclaim the input tax in full provided an output tax charge is accounted for in respect of private use.

You work from home and your office takes up 20% of the floor space in your house. You can reclaim 20% of the VAT on your utility bills.

You must keep records to support your claim and show how you arrived at the business proportion for a purchase. You must also have valid VAT invoices.

You cannot reclaim VAT for:

• anything that is only for private use;
• goods and services your business uses to make VAT-exempt supplies;
• business entertainment costs;
• goods sold to you under one of the VAT second-hand margin schemes;
• business assets that are transferred to you as a going concern.

There are different rules for a business that incurs expenditure on taxable and exempt business activities. These businesses are partially exempt for VAT purposes. They must make an apportionment between their activities using a ‘partial exemption method’ to calculate how much input tax is recoverable.

For further help and advice, we’ve created a handy and easy to use guide on VAT; read it here.

We’re also here to help you navigate the world of VAT and explaining how you can reclaim VAT. Get in touch and see how we can help you today.