A guide to VAT recovery for businesses

Generally, businesses that provide VAT charged goods and services must be VAT registered.

The VAT which is added to the full purchase price of the goods and services that you provide your customers with is known as output tax. When you buy goods or services for your business, the VAT paid while purchasing these items is known as input tax and can be reclaimed.

As you submit your VAT Return, you must state the difference between your input and output tax, and if the amount spent on input tax is higher than the amount spent on output tax, you can reclaim the difference. When calculating your potential VAT reclaim, several forms and guides can be used as help, however different rules may apply in different countries. If the items you purchase are related to any goods or services you sell that are VAT exempt, VAT reclaim will not be possible.

If your business provides goods or services that are VAT rated, whether it is at the standard, reduced or zero rate, VAT reclaim should be possible for your input tax. If you are ever in any doubt about which costs are VAT reclaimable, current VAT legislations should be available online for you to consult, although the easiest option may be to get in touch with a VAT expert.

When is VAT recovery possible?

Although it may sound relatively simple, VAT reclaim is not always straightforward.

Many detailed rules must be followed when reclaiming VAT and a number of circumstances must be met. For instance, business expenses are not always eligible for a VAT reclaim, although they may be allowable for Income or Corporate Tax purposes and VAT on business entertainment expenses can normally not be reclaimed.

When reclaiming VAT, the goods and services purchased must be used for business purposes. Any input tax paid on goods or services bought for personal use cannot be reclaimed. Similarly, VAT paid on cars that are not exclusively used for business cannot be reclaimed either.

If your company pays for goods and services to be delivered directly to customers, these VAT charges cannot be reclaimed, and in addition, VAT charges cannot be reclaimed for any art, antiques or second-hand items that your company purchases.

If your company buys goods and services from other EU member states, you will not be able to reclaim this VAT in the UK. Instead, you must direct your VAT reclaim to the VAT authorities of the foreign country. If your company has only recently registered for VAT, it may be possible for you to reclaim VAT on goods and services purchased before your VAT registration.

Usually, your VAT reclaim is paid directly to your bank account, following credibility checks by the relevant VAT authority. In the UK, repayment will usually take less than 10 working days; however, if your VAT Return does not pass the initial credibility check and is subjected to manual investigation, this period may increase. If you have not received your repayment within 30 calendar days, you are entitled to compensation in the form of a repayment supplement.