VAT Refunds: How Accountants Help You Claim It

Have you paid more VAT than you should have? Depending on the circumstances, you may be able to recover eligible VAT through your VAT Return or a specific VAT refund process. Yes, if you are a VAT-registered business in the UK, you may be able to reclaim eligible VAT through your VAT Return (via Making Tax Digital software) or claim a refund where specific VAT refund rules apply.

You may receive a repayment through your VAT Return when the VAT you can reclaim is greater than the VAT charged. Also, there are separate rules for businesses based outside the UK that want to reclaim UK VAT.

This blog explains VAT refund UK, who can claim, and the step-by-step process for both UK and overseas businesses to reclaim a refund.

What Are VAT Refunds?

You need to understand that the term VAT refund is sometimes used generally. However, HMRC distinguishes between VAT repayments and a VAT refund. Let’s first understand what a VAT repayment is.

A VAT repayment can arise when the VAT you can reclaim on eligible purchases is greater than the VAT you charged your customers. Normally, you claim VAT through your VAT Return.

For example, if you charged your customer £1,000 in VAT and have £2,000 of eligible input VAT, you may be due a £1,000 VAT repayment, subject to the normal VAT rules.

On the other hand, VAT refunds can refer to situations such as reclaiming VAT that was paid by mistake or certain refund schemes.

Who Can Reclaim a VAT Refund?

Generally, a VAT-registered business can reclaim VAT on goods and services purchased for its taxable business activities, provided the normal conditions are met. However, some non-VAT-registered organisations can also claim VAT under specific schemes.

The table below highlights the business types that can claim VAT refunds:

Additionally, to support your claim, you should keep valid VAT invoices and records. If something is used partly for personal and partly for business purposes, you can reclaim only the business proportion.

When Can UK Businesses Claim VAT Refunds?

Usually, if your business is VAT registered, you can reclaim eligible VAT on business purchases through your VAT Return, subject to HMRC’s rules.

Currently, the VAT registration threshold is £90,000 of taxable turnover. You generally need to register if your taxable turnover exceeds £90,000 over the relevant previous 12-month period, or you expect it to exceed £90,000 in the next 30 days.

However, if your taxable turnover is below this threshold, you have the option not to register for VAT. You can also register voluntarily if eligible. VAT registration may allow you to reclaim eligible input VAT, although you will generally also need to charge and account for VAT on your taxable supplies.

What Expenses Are Eligible for VAT Reclaim?

You may be able to reclaim VAT on eligible business expenses such as business equipment, office supplies, professional services, business-related utilities, and other goods and services used for business activities.

However, some expenses have special restrictions or cannot be reclaimed. For instance, you cannot claim VAT refunds on business entertainment and purchases relating to VAT-exempt supplies.

Furthermore, there are specific rules for partly exempt businesses using the Flat Rate Scheme, and certain purchases made before VAT registration. For example, if half of your mobile phone use is for personal purposes, you can only claim the business proportion of the VAT.

What Expenses are not Eligible for  VAT Refunds?

You generally cannot claim VAT on private or personal purchases that are not used for your business. You also cannot reclaim VAT on goods and services used exclusively for VAT-exempt activities, subject to the partial exemption rules.

Additionally, input VAT on business entertainment is generally blocked from recovery, subject to specific exceptions. Goods sold under a VAT margin scheme do not normally show VAT separately on the invoice, so the buyer generally cannot reclaim VAT on the purchase.

There are also specific restrictions for items such as certain leased cars and assets with both business and private use. So the VAT treatment should be checked for each expense. Once you know VAT refund eligibility, it becomes easy to claim VAT refunds.

How to Reclaim VAT Through VAT Return?

You can claim a VAT repayment through your VAT Return with the following steps:

Keep Digital Records

If you are required to follow Making Tax Digital for VAT, keep your VAT records using compatible software.

Calculate Your VAT

Your accounting software calculates the relevant VAT figures, including Box 3 (total VAT due) and Box 4 (VAT reclaimed).

Complete Your Return

If Box 4 is greater than Box 3, the difference is the VAT repayment due. Then, it is reported in Box 5.

Submit to HMRC

Submit VAT Returns using Making Tax Digital-compatible software, unless an exemption or specific exception applies.

Receive the Repayment

Typically, HMRC processes and makes VAT repayments within about 30 days of receiving your return. You must ensure your repayment bank details are correct.

Retain Records and Respond to Checks

Keep records of invoices and other supporting documents. HMRC may contact you if it needs to check the return or repayment.

How Do Overseas VAT Refunds Work?

If you are a business based outside the UK, you may be able to reclaim VAT under HMRC’s overseas VAT refund scheme. Generally, the business must not be registered, liable or eligible to register for VAT and must have no UK business establishment. Also, it must not make UK supplies except for certain specified exceptions.

Eligible businesses can claim UK VAT on qualifying goods and services purchased or imported into the UK, subject to restrictions. Typically, claims are made for a prescribed year running from 1 July to 30 June, with the deadline being 31 December following the end of that period.

What Is A VAT Refund for Travellers?

In the UK, travellers have different VAT rules. For travellers, VAT refund rules depend on where they shop and where they are travelling from.

In Great Britain (England, Scotland and Wales), the VAT Retail Export Scheme is no longer available for goods bought in shops and taken home in luggage.

However, tax-free shopping may be available where eligible goods are delivered directly to an address outside the UK. In Northern Ireland, eligible overseas visitors may still be able to claim VAT back on qualifying purchases from participating retailers.

What Records Do You Need to Claim VAT Refunds?

To reclaim VAT, you should keep complete records and supporting evidence, including:

• Valid VAT invoices or other acceptable evidence for purchases.
• Records showing the purchases were for business purposes.
• Calculations supporting any business or private-use or partial-exemption apportionment.
• A VAT account and other records supporting the figures on your VAT Return.

Moreover, you need to keep VAT records for at least 6 years. Also, if you make a VAT error, you should correct it. Penalties may apply to careless or deliberate errors. Where an error was made despite taking reasonable care, a penalty may generally not apply, although the circumstances and nature of the error should be considered.

If you submit a VAT Return late, the VAT late-submission penalty rules may apply depending on the circumstances.

Final Thoughts

VAT repayments and VAT refunds can help eligible UK businesses recover VAT, provided they meet the relevant HMRC rules. If you are a VAT-registered business, you can reclaim eligible input VAT through your VAT Return. Eligible non-UK businesses may use a separate scheme to reclaim UK VAT.

To claim eligible VAT, you must keep accurate records and follow any special rules that apply to your business. If you are unsure whether a purchase qualifies, professional accounting advice can help.

You can find a qualified accountant on AccountingFirms. You just need to enter your postcode, compare services, and select an expert that best suits your business within just a few minutes!

Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.