VAT stands for Value Added Tax. It is not an outdated concept. Everything you buy or use for work carries a specific VAT value. This VAT is finally transferred to the HMRC. Buying things and paying tax on them is the simple flow of money from buyers to sellers and then to HMRC. But is there any way for claiming back VAT?
In the following article, we will be discussing some useful pieces of information. It will help you to gain a full-fledged apprehension on the main topic. Imagine you are paying VAT on different goods and services but you have no awareness about how to claim the VAT back! Then you are at a loss. So let’s go through some basic details.
WHAT IS VAT?
VAT is an extra 20% charge on your invoice. VAT is mentioned on every issued invoice. Invoices are made at every step of buy and sale. VAT is also added at each step. VAT may be standard rated, reduced rated, or zero rated.
“No matter what type of VAT is applied to your goods it is always mentioned in your invoices. .”
CAN VAT BE CLAIMED BACK? WHO CAN RECLAIM IT?
You can claim the VAT back. But you need to go through some important points first. After, you can think of to claim the VAT back. You must be VAT registered! If you are not VAT registered you can’t apply for claiming VAT back.
You must register your business for VAT if your taxable turnover exceeds £85,000. Or in another case, you may register yourself in partnership with someone. In both cases, you will get a certificate that carries a VAT number along with some other details.
If you are not VAT registered you cannot charge as well as claim VAT back. In that case, it is advisable to remain below the VAT application limit. Sometimes claiming VAT back can be complex. Don’t you worry! Legend Financial has a team of expert who can help you in claiming back VAT. Send us a message or schedule an appointment with us today by clicking the button below!
Still not registered? Fill out the required details online to create your VAT account. Register yourself as an individual. You can also register as a team. A specific VAT account number holds the whole team. After that, you can claim the VAT back!
WHAT CAN YOU RECLAIM?
The VAT return is applicable for business-related items. You can reclaim that VAT back by following the proper procedure on different items. Following are some of the items that might be considered while claiming VAT back:
- Equipment used for business work like laptops, computers, headphones, keyboards, mouse.
- Stationery items like paper clips, staplers, stapler pins, glue sticks, puncher, thread, envelopes.
- Business vehicles and fuels like cars purchased for employees. Or an allowance of fuel in a specific amount for the workers.
- The location used for the office building either is on rent or on sale.
- Bills of your office work like electricity bills, gas bills, and security bills
- Professional services that your business requires to run itself.
- Stocks that your business collects in raw form to convert it into the purchasable item.
- Money spent on promotion and other marketing techniques.
- Money spent while giving pensions, bonuses, and salaries
- All the expenditures did while traveling.
WHAT CANNOT YOU RECLAIM?
Suppose you selected a specific location for your office work and started to work there. On the day, you and your employees work at the said location. At night, you sleep in the same place. In this scenario, the location can be considered to be for your personal use too.
You can reclaim the VAT back for a specific time. The specific time includes business-related work only. You cannot reclaim the VAT back when you were using the office for your personal use. Your VAT reclaim will apply to day hours only.
For the proper claiming process you have to mention every detail in your invoices. It is mandatory to mention that the office was used for 12 hours only for business-related work. Now if the rent was £10,000 and you paid VAT as an extra £2,000 the total cost for you will be £12,000. At the time of reclaiming back, you can reclaim only half of the VAT which is £1,000 instead of £2,000. This happened because 12 hours the office room was used for your business work. Another 12 hours it was used as a personal accommodation.
To know more on what your business cannot reclaim, click here.
RECLAIMING VAT ON BUSINESS EXPENSES
If your business is VAT registered you enjoy many benefits as a contractor. You can claim the VAT back on different goods that were purchased for your business.
Reclaiming VAT on Vehicles
Cars are not a source to let you claim the VAT back. But certain vehicles bought from a business perspective help you to claim the VAT back. Following postulates are important to mention in mind. VAT is claimed back on vehicles when:
- A taxi driver drives your business car.
- Your business is to rent out cars. For this purpose, you keep on purchasing cars on and off.
- Your business is VAT registered. You buy a commercial vehicle like a van, truck, or lorry to ship your supplies from one place to another.
If your conditions match any one of the above, you can claim the VAT back. The contractors make a particular invoice. The invoice carries an extra amount according to your situation. You can claim the VAT back after reviewing your situation. But if you have started using the same vehicle for your personal use, you can’t claim the VAT back because it’s applicable from the business point of view only.
Reclaiming VAT on Fuel
Vehicles alone cannot run. It needs fuel. A businessman buys a certain vehicle for business. The fuel used for the vehicle is only for business. Thus, the VAT can be reclaimed.
Let’s suppose that the business person buys a vehicle for office. But in the long run starts to use that vehicle for personal use. He cannot claim VAT back on that specific vehicle. It is a must thing to use it for business only.
Let’s assume a case in which a company buys a car and pays VAT on its invoice as well as on its fuel. The taxi driver drives the car for loading. He is also using the same fuel to give a lift to his boss. Now giving a lift to his boss counts as a personal usage of fuel for the company owner. A company cannot claim the VAT back on fuel spent during giving a lift to the boss.
Reclaiming VAT on Staff Travel
Usually, traveling becomes a compulsory part whenever it’s a discussion about meetings. Staff might also have to travel abroad. The expenses calculated can be a source to claim the VAT back.
The expenses include traveling, staying in hotels, fuel, and meals. An important question arises over here. To whom do we consider an employee or staff? All the persons working in a company are not considered as staff. Below are some people who can serve as staff members.
“All the details should be properly accounted for in each invoice so that the exact amount can be claimed back .”
- If the person works under you directly and not through another organization.
- Managers, partners, directors, colleagues, and shareholders act as employees.
- Helpers who will play an important part to run the event.
All the details should be properly accounted for the invoice so that an exact amount can be claimed back. But if you had already paid your staff for flat-rate expenses, you can’t claim the VAT back.
Reclaiming VAT on Food
You cannot claim the VAT back in the case of food. But if a person sets on a journey for business purposes. It included food as well as accommodation, you can reclaim your VAT back on food as well.
“For claiming VAT back, the item or service should be business related and not for personal use.”
HOW LONG CAN BE VAT RECLAIMED BACK?
VAT can be reclaimed on different items as well as on services. These items should be purchased with the intention of business work. Moreover, your business should be VAT registered.
Let’s suppose you have recently got registered for VAT. But you have been dealing in this business for a long time. You have been wondering over here and there with lots of invoices in your pocket. These invoices are proof of your experience. But they can also help you in another way.
These invoices were made when you were not VAT registered. But after VAT registration you can reclaim VAT back on these purchases. So, VAT registration brings many benefits for the future. It also helps you to collect money from past purchases.
- VAT can be claimed back on goods four years before VAT registration. Goods should be business-related.
- VAT can be claimed back on services six months before VAT registration. Services should be business-related.
RECLAIMING VAT ON PURCHASES DONE BEFORE VAT REGISTRATION
If you want to reclaim VAT back on the acquirement of items, you need to fill the following conditions. The sale should be made four years before your VAT registration.
- The items got by you under the same account that is registered for VAT as well.
- The items are still in use.
- You cannot reclaim VAT back on items purchased in the past if the following conditions occur.
- You have consumed your items before your VAT registration
- You have sold your items before your VAT registration
The following conditions should be fulfilled if you want to reclaim VAT back. It will apply to the services purchased six months before VAT registration.
- You had acquired services under the same account that was registered for VAT as well.
- VAT taxable business was the main reason behind your service need.
You cannot reclaim VAT back on services provided in the past. Some conditions apply to this statement. These are as follows:
- Services related to items that are not in use now
- Services that are exempt from VAT
HOW DO YOU RECLAIM A VAT REFUND?
To reclaim a VAT refund, you must have a proper record of VAT invoices. An invoice needs to be valid. Otherwise, the HMRC will not accept it. An invalid VAT invoice will cause a failure in claiming VAT back. Invoices should be issued to you at greatest up to thirty days from supply time.
Certain things should be cross-checked before or after issuing an invoice. In case of any specified services, a complete set of information should be mentioned. It will make your invoice valid for claiming VAT back.
- Businessman and purchaser name
- Businessman and purchaser address
- Businessman and purchaser VAT Account number
- Businessman, purchaser invoice number
- Issued date
- Supply time
- Complete information of goods and services provided
- The total cost of goods and services with corresponding VAT mentioned
Any particular details missing can lead to an invalid invoice. The invoice runs in a proper format. The HMRC might not consider a random statement, demand of payment as a VAT invoice. The HMRC might not consider a bank statement in the place of any invoice as well.
For claiming back VAT or VAT refund, you have to submit your invoices online. You have to log in to your HMRC account to calculate the VAT Return. After 10 days of your VAT return submission, HMRC will transfer your amount to your account. However, Legend Financial can process the VAT refund for your business. If you want to discuss further on this matter, please drop us a message or schedule an appointment with us today!
WHAT DO I NEED TO CHECK BEFORE RECLAIMING VAT BACK?
You are aware of different tricks and pathways through which you can reclaim VAT back. A quick check can help you to go through some important points. Start putting a tick in your mind before claiming VAT back on any of the things mentioned above.
You can claim the VAT back if:
- The purchased goods and services were from a business perspective
- The purchased goods and services are not halted for a VAT reclaim
- There is a valid invoice for that particular thing in your pocket.
WHAT IF YOUR INVOICES ARE MISHANDLED?
Mishandling of invoices can lead to serious problems. If an invoice is issued late, the HMRC might consider it a human error. HMRC will wait until a proper invoice is being submitted to its online site.
But if a person leading a business on a small scale mishandles the invoices or does not return the invoice after thirty days, then HMRC may consider your bank statement. HMRC will cooperate with you unless or until there is a doubt of any fraud case.
HOW CAN AN ACCOUNTANT HELP ME TO RECLAIM VAT BACK?
Proper invoices and the right entries at the right time are the basic work pattern of an accountant. Legend Financial has a team of experts who can handle your business paperwork with much accuracy and efficiency. It’s the team’s responsibility to keep a complete check and balances in your finances. Legend Financial can assists you in submitting your invoices on time, letting you claim the VAT back on time!
“For claiming VAT back, the item or service should be business related and not for personal use.”
Claiming back VAT is one of the business tax relief that you shouldn’t be missed. Mostly, it’s twenty percent. Make sure to have proper invoices for every purchase. By reviewing those VAT returns, you can claim your VAT back from HMRC.
Twenty percent is a small portion of the total amount. It may become heavy when not properly received back, especially if your taxable turnover is near to £85000. Therefore, proper knowledge of claiming VAT back is vital.
Legend Financial has been in this industry for almost a decade helping every business firm maximizing their benefits while minimizing their responsibilities. Legend Financial can help you as well in making sure you’ve claimed back the VAT you deserved. Send us a message or book an appointment with us and our expert will reach back to you!
Business and self-employed: Business tax. (n.d.). Retrieved from Gov.uk: https://www.gov.uk/vat-registration
Reclaiming Back: How to register. (n.d.). Retrieved 04 01, 2021, from Gov.uk: https://www.gov.uk/vat-registration/how-to-register
Reclaiming VAT: Staff travel. (2021, April 1). Retrieved from Gov.uk: https://www.gov.uk/reclaim-vat/staff-travel
Rutley, D., & Quin, J. (Eds.). (2019, June 19). The Value Added Tax (Section 55A) (Specified Services) Order. Statutory Instrument, 2. Retrieved April 1, 2021
VAT: Reclaiming VAT. (2021, April 1). Retrieved from Gov.uk: https://www.gov.uk/reclaim-vat