Tax and pensions
Claiming back VAT in 3 steps
TAX AND PENSIONS
Claiming back VAT in 3 steps
If your business is VAT registered you may be able to claim back VAT on certain purchases related to your business, potentially improving your cash flow and reducing your overall costs.
Provided you follow the right steps and keep accurate records, VAT claims can give your company an annual cash boost that could be the difference between financial success and failure, particularly in the early days of running a business.
In this guide from QuickBooks, we will discuss how VAT claims work, what you can claim for, and how to submit your VAT return in 3 simple steps.
In this blog:
How do VAT claims work?
VAT is a type of tax added to most goods and services sold in the UK. If your business is VAT registered then you are required to charge VAT on your sales, sometimes referred to as output tax, but you may also reclaim the VAT paid on many of your business expenses, referred to as input tax.
The amount you owe or reclaim depends on the difference between the VAT you’ve collected and the VAT you have already paid. If you have paid more VAT on purchases than your business has collected in sales, then you can claim the difference from HMRC. If the reverse is true, then you will need to pay the difference to HMRC.
VAT claims are submitted as part of your VAT return, which you would typically file every quarter. This is a key part of maintaining good financial health, as reclaiming VAT can help reduce your business’ overall tax liability and free up working capital.
Learn more about the importance of accurate VAT compliance.
What can I claim back?
You can only reclaim VAT on certain eligible business expenses, detailed below, and these expenses can only be reclaimed if they were specifically for use by the business, as HMRC has strict rules on what counts as a business expense. For example, you may be able to claim back VAT on food expenses related to you as a director or employee of the company, but if you purchased food for a client then this cost would not be eligible.
A professional accountant will be able to advise on which expenses can be reclaimed.
Capital expenses
Capital expenses may refer to significant purchases that your business uses over a longer period, such as computers, office furniture, and equipment. If these assets are used entirely for business purposes then you can usually reclaim VAT in full, but if they are only partially for business use then you can only claim a proportion of the VAT.
Expenses and travel
Everyday business expenses like stationary, software subscriptions, and client meetings often come with reclaimable VAT. Travel costs, such as fuel; train fares, or hotel stays, can also qualify if the trip is entirely for business purposes. Keep in mind that you must have valid VAT receipts to make a claim.
Vehicles and fuel
If a vehicle is used solely for business purposes, the VAT on the purchase, rental, maintenance, and fuel may be reclaimable. If the vehicle is also used privately you may also still claim some of the expense back, but this will only be a small portion of the full VAT paid. For fuel, HMRC provides several options including the flat rate fuel scale charge - which simplifies partial claims.
Business entertainment
VAT on business entertainment is generally not recoverable unless the entertainment is solely for employees, rather than a fee incurred by entertaining clients. For example, the VAT costs of taking your staff for a christmas meal may be reclaimable, but VAT on meals with clients is generally not.
Costs partially for business use
When a purchase is split between business and personal use, such as a mobile phone or home internet, you can only claim VAT on the business-related portion. You will also need to be able to justify the split to HMRC by providing reasonable evidence.
Can I claim VAT back on historical purchases?
If your business has recently become VAT registered, then you can reclaim VAT on eligible purchases made before registration, which may include:
Goods bought up to 4 years before registration (if still in use for the business)
Services bought up to 6 months before registration.
You’ll need to provide evidence such as original VAT invoices and proof the purchases are still relevant to your business activities.
How can I calculate how much VAT I can claim?
To calculate how much VAT you can claim, you must review all the purchases and expenses your business has incurred where VAT was charged, and ensure they relate directly to taxable business activities. You can only reclaim VAT if you are a VAT-registered business and the goods or services purchased are used for business purposes. You will also need valid VAT invoices showing the amount of VAT paid.
You can use the following steps to help calculate how much VAT you can claim.
Check if the purchase is eligible | Confirm the purchase was for business and has a valid VAT receipt or invoice. |
Identify the VAT rate applied | Make sure you apply the correct VAT rate for your business (standard at 20% and reduced at 5%). |
Calculate the VAT amount | If the invoice includes VAT, the VAT amount will be shown. If not, then you may need to calculate it by dividing the total by 6 for 20% VAT. |
Use accounting software | Tools like QuickBooks’ VAT software can help track and sum VAT across all transactions, providing a running total for your claim. |
How to claim VAT back in 3 steps
1. Keep accurate VAT records
The first step to any successful VAT claim is to keep comprehensive records, including:
VAT invoices from suppliers
Receipts showing the VAT amount
Documentation of the business purpose of the expense
Details of how you’ve apportioned VAT on mixed-use items
Without accurate records, your claim may be rejected or challenged by HMRC.
Submit your VAT return
Every VAT period (usually quarterly), you must file a VAT return with HMRC. This is done using software that complies with Making Tax Digital (MTD) requirements.
Your VAT return should include:
Total VAT you’ve charged customers
Total VAT you’ve paid on business purchases
Net VAT due to or from HMRC
Be sure to submit on time to avoid penalties.
Claim back your VAT
If the VAT you've paid on purchases exceeds the VAT you've collected from customers, you'll be eligible for a VAT refund. HMRC usually processes repayments within 10 working days. The amount will be transferred directly into your business bank account.
How do I become eligible to claim VAT back?
To become eligible to claim VAT back in the UK, you must first register your business for VAT with HMRC. This is usually required once your taxable turnover exceeds the VAT threshold, which is £90,000 as of 2024, though you can also register voluntarily if your turnover is below that amount.
Once registered, you’ll receive a VAT number and must start charging VAT on your sales and submitting VAT returns. To claim VAT back, the goods or services you’re reclaiming must be used for business purposes, and you must have proper VAT invoices or receipts from VAT-registered suppliers.
Purchases must also relate to VAT-taxable activities - if your business only makes VAT-exempt sales, you generally can’t reclaim VAT. You also need to submit your VAT returns on time and keep detailed records to support your claims, including digital records if you’re part of Making Tax Digital.
Find out how to register for VAT online.
Are there penalties for errors or missed deadlines?
There are penalties for both errors and missed VAT deadlines in the UK. HMRC operates a points-based penalty system for late VAT returns, with each late submission earning a penalty point. Once you reach a set threshold (depending on your filing frequency), you’ll receive a £200 penalty, with further £200 charges for each additional late return.
For late VAT payments, HMRC charges interest from the due date until the payment is made, and you may also face late payment penalties that increase the longer the payment is overdue.
Errors on VAT returns can also result in penalties, especially if HMRC believes the error was careless or deliberate. The amount depends on the nature and size of the mistake and whether you disclosed it voluntarily. However, if you spot an error and correct it promptly, especially if it’s under £10,000, you can often fix it in your next return without formal penalties. Keeping accurate records and submitting returns and payments on time is essential to avoid these charges.
Worried about VAT penalties? Find more information in our blog, HMRC’s VAT penalty regime.
How should I keep good VAT records?
If you're VAT-registered in the UK, it is essential to keep accurate, well-organised records that meet HMRC requirements. Not only does this ensure compliance, but it also makes preparing your VAT returns simpler and less stressful.
Good VAT record-keeping means maintaining clear documentation of all your sales and purchases, properly accounting for VAT, and storing everything securely - ideally in digital form if you're following Making Tax Digital (MTD) rules.
Invoices
VAT invoices are a core part of your records. These are documents you issue to your customers whenever you make a sale, and they need to include specific information to be valid. Every VAT invoice must clearly show your business name, address, and VAT number; the invoice date and a unique invoice number; the customer’s details; and a clear description of the goods or services supplied. It must also show the VAT rate applied, the net amount before VAT, and the total VAT charged.
Keeping copies of all VAT invoices you issue, and the ones you receive from suppliers, is essential for supporting your VAT returns.
Receipts
Receipts provide evidence of smaller business purchases, particularly those where a full VAT invoice isn’t issued. While not all receipts show VAT breakdowns, many do - especially from major retailers. It's important to keep any that relate to business expenses where you might reclaim VAT. Receipts should clearly show the name of the supplier, the date, and the total amount paid.
Where VAT is included, make sure the VAT rate and amount are shown or that you have enough information to calculate it. Organise your receipts by date or expense category to make tracking easier.
Proof of purchase
For larger or capital expenses, you should retain formal proof of purchase documents - this could be an invoice, contract, or delivery note. These are particularly important when claiming back input VAT on high-value items or when HMRC audits your records.
Proof of purchase should clearly show who the supplier was, what was purchased, how much was paid, and the VAT charged. Keeping these documents for at least six years is a legal requirement, and they can be stored digitally, as long as they’re complete, legible, and easily accessible.
Use dedicated accounting software
Using accounting software is one of the most effective ways to keep good VAT records - especially now that Making Tax Digital is in force for most VAT-registered businesses. MTD-compatible software like QuickBooks helps you record sales, expenses, and VAT transactions in real time, and automatically generates VAT returns based on your entries.
These tools also store digital copies of invoices and receipts, reducing paperwork and minimising errors. Most platforms allow you to link your bank account, scan receipts, and track VAT schemes, making VAT record-keeping more efficient and compliant with HMRC regulations.
How can I streamline VAT claims?
Manual VAT tracking can be time-consuming and error-prone. Using digital tools simplifies the process:
Automate VAT calculations at the point of sale or expense logging
Reduce data entry by importing bank transactions and receipts
Keep accurate records in real-time to avoid last-minute rushes
File VAT returns directly to HMRC
QuickBooks’ intuitive VAT software handles all of the above and can help you stay compliant with Making Tax Digital regulations. Enhance your VAT filing process today with QuickBooks.
FAQs
What are the most common mistakes made in VAT claims?
1. Claiming VAT on ineligible purchases
One of the most frequent errors is trying to reclaim VAT on items that aren’t actually eligible. For example, you can’t reclaim VAT on:
Business entertainment expenses
Personal or mixed-use purchases (unless the business element can be clearly separated)
Company cars (in most cases)
Non-VAT-registered supplier invoices
If in doubt, check HMRC’s guidance on what qualifies for VAT recovery.
2. Using incorrect or missing VAT invoices
To reclaim VAT, you need a valid VAT invoice from a VAT-registered supplier. Many businesses try to reclaim VAT based on pro-forma invoices, quotations, or till receipts that don’t meet HMRC’s requirements.
A valid VAT invoice must include:
Supplier’s VAT number
Invoice date
VAT amount
Net and gross values
Without this, your claim may be disallowed during an inspection.
3. Entering the wrong VAT rate
Another common mistake is applying the wrong VAT rate - such as charging or reclaiming the standard 20% rate on items that are zero-rated (like most food items) or reduced-rated (like children’s car seats or home energy).
Always double-check the correct rate for goods or services, especially when dealing with niche or specialised items.
4. Incorrectly claiming VAT on employee expenses
If your employees buy items and reclaim them through expenses, you can only reclaim the VAT if the purchase was for business use and the employee provides a valid VAT invoice in the business’s name. VAT cannot usually be reclaimed on expenses with missing receipts or receipts that name the employee rather than the business.
5. Missing the VAT reclaim deadline
You usually have four years from the date of the invoice to reclaim VAT. Businesses sometimes discover old invoices they forgot to claim - but if they’re older than four years, you’ll miss the opportunity.
Regular bookkeeping and VAT return checks can help catch these early.
6. Errors in digital records under Making Tax Digital (MTD)
Under MTD rules, VAT returns must be based on digitally linked records. Errors can happen when businesses manually re-type figures between spreadsheets or use copy-paste methods that break the digital audit trail.
Make sure your software is MTD-compatible and that you’re using it properly to stay compliant.
7. Double-claiming VAT
This happens when VAT on the same invoice is claimed in more than one return - usually because the invoice was mistakenly entered twice. It often occurs when bookkeeping is delayed or rushed at the end of the quarter. Always reconcile your records to avoid duplicate entries.
Can I claim VAT back as a sole trader?
Sole traders can reclaim VAT on business-related expenses as long as they are VAT registered and the expenses are used solely for business purposes.
The information on this website is provided free of charge and is intended to be helpful to a wide range of businesses. Because of its general nature the information cannot be taken as comprehensive and they do not constitute and should never be used as a substitute for legal, accounting, tax or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date. Any reliance you place on information found on this site or linked to on other websites will be at your own risk.
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