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As any business owner knows, VAT (Value Added Tax) is just one more headache that has to be dealt with — but one which, when done right, can net you some serious savings for your business.
A Quick Introduction
VAT is charged on most business transactions in the European Union, with businesses adding VAT to the price they charge for any goods and services they’re selling. Yet, the receiving business or client can apply for VAT recovery in most cases — but the final consumer will find that the price they pay has non-reclaimable VAT already included.
Needless to say, VAT is a steady source of revenue for the UK government, and therefore, any recovery is subject to certain strict rules and regulations.
VAT Recovery: When You Can Claim It
VAT recovery is an option for any goods and services bought for your business. If you buy something which is to be used both for your business and your own personal or private (non-business) use, then you can only claim recovery on its use in your business, not both.
A great example of this would be your mobile phone bill. Let’s say you use it roughly 50% of the time for your business, and the other 50% of the time for personal calls. You would therefore be eligible for recovery of VAT only on the 50% which you used for your business’ needs.
Another example is if you work from home, and your office at home comprises 30% of your house’s area. You would therefore be eligible for a 30% VAT recovery on your utility bills.
Needless to say, in both of the above cases and in general, when making a claim for VAT recovery, you need to have evidence to support it. Invoices and records are good examples of this.
VAT Recovery: What You Can’t Reclaim
Further to the above, you are unable to reclaim VAT on:
- Purchases solely for private or personal use
- Goods and other service purchases for use in your business to make VAT exempt supplies or products
- Entertainment costs incurred by your business
- Purchases from other EU countries (although this is also subject to certain exceptions, such as the electronic cross-border refund system)
- Anything sold to your business or you as a part of the VAT second-hand margin scheme
There are other additional exceptions to the above two rules. It’s best to check with a professional expert if you’re unsure about VAT recovery eligibility.
There are a few other exemptions to VAT recovery you may need to know:
- Purchasing goods before VAT registration may give you the opportunity for VAT recovery, within certain time frames.
- Partly exempt businesses may have other factors and regulations.
- High value business assets of £50,000+ before VAT, such as computers and related equipment, aircraft and transport, and land and buildings costing over £250,000 before VAT will have other regulations to follow.
Once you know what you can and can’t reclaim, actually submitting your form and supporting documents, as well as receiving your reclaimed VAT, is much more straightforward, usually taking up to 30 business days once your claim has been processed.