As long as you are registered for VAT, you can claim VAT back on the purchases you make for your business. In general, you can reclaim the VAT that you pay for purchases – known as input tax – as long as those purchases relate to the goods or services your business sells that are liable for VAT.
This means that you cannot reclaim VAT on purchases that are not for your business, or that relate to goods or services your business sells that are exempt from VAT.
You can normally reclaim the VAT for purchases relating to goods or services you supply where you charge VAT at the standard, reduced or zero rate. You will need to keep all invoices that you receive, for purchases used for your sales, as evidence for your claim. These VAT invoices must have been issued by someone who is registered for VAT.
What you can and can’t reclaim VAT on
VAT rates explained: standard, reduced, zero, exempt
Reclaiming VAT if you supply exempt goods or services
If your business only supplies goods or services that are exempt from VAT, then you cannot register for VAT and so cannot claim the VAT back on your purchases.
If you are registered for VAT and pay VAT on goods and services that relate to exempt supplies, you are classed as
‘partly exempt’. Provided the VAT you paid that relates to exempt supplies is below a certain amount, it can be recovered in full.
If you supply a mix of exempt and non-exempt goods and services, you cannot reclaim VAT you pay on purchases that relate directly to the supplies of exempt goods or services that you make. However, you may pay some VAT on purchases you make that relate to the running of your whole business, such as rent and office overheads. There are special rules to work out how much of this tax you may reclaim.
Exempt and partially-exempt businesses for VAT purposes
When you can claim
You should normally make reclaims on your VAT Return for the period in which they occur. If you are kept waiting for the evidence, you can claim it within three years of the return.
When transactions take place for VAT purposes
If you generally expect to claim a repayment of VAT each time you submit your return, because you usually pay more input VAT than you charge on your sales, you can choose to make monthly returns where you make 12 returns a year instead of four. You can’t do this if your turnover is below the VAT threshold and you registered voluntarily for VAT.
Contact HM Revenue & Customs (HMRC) for more information about switching to monthly returns.