How to claim VAT back: Step-by-step guide

If you run a VAT-registered business you have to charge VAT on all of the goods and services your business sells and pass this tax on to HMRC. But the good news is that you can also claim VAT back on the goods and services that you buy for business use. In this step-by-step guide, we’ll explain how to claim VAT back, and answer some of your most common questions on this process.

Who can claim back VAT?

Let’s start by looking at the eligibility requirements, since this process doesn’t apply to every business.

You can only claim back VAT if you are VAT registered. Your business has to be registered for VAT if your total taxable turnover for the last 12 months was over £90,000, or if you expect your taxable turnover to go over £90,000 in the next 30 days. You may also choose to register for VAT if your taxable turnover is less than £90,000. HMRC refers to this as “voluntary registration” and, as the name suggests, it isn’t compulsory.

As a VAT-registered business, you’ll not only charge VAT on your goods and services, but also reclaim VAT on your business purchases. This claims process is done through your regular VAT returns , which are typically filed quarterly through HMRC’s Making Tax Digital system. You can claim back VAT on most business expenses provided you have valid VAT invoices to support your claims.

How does claiming VAT back work?

When you’re VAT registered, you essentially act as a tax collector for HMRC. Each quarter, you’ll need to add up all the VAT you’ve charged your customers (output tax) , calculate the VAT you’ve paid on business purchases (input), subtract what you’ve paid from what you’ve charged, and submit these figures to HMRC through your VAT return.

If you’ve charged more VAT than you’ve paid, you’ll need to pay the difference to HMRC. However, if you’ve paid more VAT than you’ve charged, HMRC will refund you the difference.

As you go about this process, keep the following points in mind:

• Ensure you have valid VAT invoices for all your claims and hang onto these invoices and receipts for at least six years
• Keep your business and personal expenses separate
• Only claim VAT on legitimate business expenses
• Submit returns on time to avoid penalties
• Check all your calculations before you submit your VAT return
• Maintain organised digital records

HMRC has detailed guidelines on the business expenses on which you can reclaim VAT. In general, you can reclaim most purchases that are exclusively for your business, including office supplies, equipment, professional services, and business travel. You can’t reclaim VAT for:

• Anything that’s only for personal use
• Goods and services your business uses to make VAT-exempt supplies
• Entertainment or hospitality 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

How do I claim my VAT refund? A step-by-step guide

OK, time to get into the details. This guide will help you claim your VAT back from HMRC.

As a VAT-registered business

Step 1: Gather your records

Start by collecting all your VAT receipts and invoices for the quarter. These must be valid VAT invoices that clearly show the VAT amount, the supplier’s VAT number, and your business details. Keep these organised by date and ensure they’re all for legitimate business expenses.

Step 2: Calculate your VAT

Calculate your input VAT (the VAT you’ve paid on purchases) and output VAT (the VAT you’ve charged customers) for the quarter. Deduct your input VAT from your output VAT to determine whether you need to pay HMRC or can claim a refund.

Step 3: File your return

1. Log into your HMRC account and access Making Tax Digital for VAT
2. Select “Submit VAT Return”
3. Enter the following figures:
1. VAT due on sales (Box 1)
2. VAT reclaimed on purchases (Box 4)
3. The total value of sales excluding VAT (Box 6)
4. The total value of purchases excluding VAT (Box 7)

If your input VAT (Box 4) is greater than your output VAT (Box 1), HMRC will owe you a refund.

Step 4: Receive your refund

Once submitted, HMRC typically processes refunds within 10 working days. The refund will be paid directly into your registered bank account. If HMRC has any queries, they may contact you for additional information, which could delay the process.

As a sole trader

Step 1: Check your eligibility

“How do I claim VAT back as a sole trader?” you ask. As a sole trader, you can only reclaim VAT if you’re VAT registered. You must register if your annual turnover exceeds £90,000, but you can register voluntarily if your turnover is below this threshold.

Step 2: Register for VAT

1. Register for VAT through your HMRC business account
2. Sign up for Making Tax Digital for VAT
3. Choose your accounting scheme (standard, flat rate, or cash accounting)
4. Set up your VAT online account

Step 3: Follow the rules for other types of business

Once you’ve registered for VAT, the process for claiming VAT is the same as for any other business:

1. Keep detailed records of all VAT receipts and invoices
2. Calculate your VAT quarterly by adding up the VAT you charge to customers, the VAT you pay on purchases, and working out the difference
3. Submit your VAT return through Making Tax Digital

When can you claim VAT back?

As a VAT-registered business, you reclaim your VAT on your quarterly VAT returns.

Generally, you’ll claim in the same VAT period when you receive the invoice. For purchases made before you registered, you can claim VAT on goods bought up to four years before registering and services up to six months prior. For larger capital expenditures, special rules apply through the Capital Goods Scheme, while import VAT claims require either an import VAT statement or C79 certificate.

Remember that to ensure that your return is processed promptly, you must submit your return within one month and seven days after the end of your VAT period.

Does HMRC automatically refund VAT?

If you submit your VAT return and it shows you’re due a refund, HMRC typically automatically processes this within 10 working days. The refund is paid directly into your nominated bank account. However, HMRC may hold your refund for additional checks if:

• It’s your first VAT refund claim
• The refund amount is unusually large
• There’s been a significant change in your trading pattern
• Your return has been chosen for random verification

HMRC may also use your VAT refund to pay off other tax debts before issuing any remaining balance. This includes outstanding VAT from previous periods, PAYE debts, Corporation Tax debts, or other tax liabilities.

If you haven’t received your refund after 10 working days, check your VAT online account for any messages or contact HMRC’s VAT helpline. It’s also worth double checking that your bank details are correct in your VAT account. Be prepared that you may need to supply additional documentation.

Quickfire summary: How to claim VAT back

Claiming VAT back is an important part of running a VAT-registered business in the UK, and you can reclaim VAT on most business-related purchases through your quarterly VAT returns.

The process involves calculating the difference between your output tax (the VAT you charge to customers) and input tax (the VAT you’ve paid on your business purchases). You can claim VAT back on a wide range of business expenses, from office supplies to professional services and travel. However, certain items like personal purchases and entertainment expenses are excluded.

The key to successful VAT reclaims lies in keeping good business records. Hang onto your VAT invoices, store your documents digitally, and keep all relevant information for at least six years in case HMRC has any queries. And if you feel like you need an extra hand along the way, contact HMRC directly or ask a tax accountant for help. They’ll be able to guide you.

Also read:

• When does the tax year start in the UK?
• What is a P11D? Everything you need to know about the employee benefits tax form
• What is a P60 in the UK? (Full guide)
• How to calculate VAT
• READ MORE OF OUR BUSINESS INSURANCE GUIDES

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