VAT (value added tax), is a surcharge applied to most goods and services. Both large and small businesses can reclaim VAT on business expenses provided you are registered for VAT. The process of accounting and how to claim back VAT can become time-consuming, however very worthwhile due to the economic benefit. Here’s how it works.
How to Claim Back VAT as a Small Business
You are only able to claim back VAT if you are VAT registered. Every business with a turnover of £85,000 is legally required to register for VAT. You can voluntarily register if your turnover is below this level. There are some benefits to registering for VAT even if your turnover is below the threshold, however you will need to calculate if this makes financial sense. If your annual turnover is less than this threshold, then you can decide whether or not to register for VAT. If this is the case and you are free to choose, there are pros and cons to consider before registering for VAT. Prestige Business Management can help you calculate what will be most profitable for your small business. Once registered, you will be required to charge VAT on the goods and services you sell, but you can also claim it back on the expenses your business incurs.
What you can Reclaim VAT on
You can only reclaim VAT on allowable expenses which are used specifically for your business. Here are some examples of costs you can claim as allowable expenses:
- office costs, for example stationery or phone bills
- travel costs, for example fuel, parking, train or bus fares
- clothing expenses, for example uniforms
- staff costs, for example salaries or subcontractor costs
- things you buy to sell on, for example stock or raw materials
- financial costs, for example insurance or bank charges
- costs of your business premises, for example heating, lighting, business rates
- advertising or marketing, for example website costs
- training courses related to your business, for example refresher courses
Reclaiming VAT on Business Vehicles and Fuel
If you buy or lease a vehicle, whether that is a car, van or truck, you can claim back the VAT on the purchase. It’s important to be able to prove that the vehicle is used only for business purposes for this reclaim to be valid. You can also claim back the VAT paid on fuel used for business travel.
The Process to Claim Back VAT as a Small Business
In order to claim back the VAT you have spent as a small business you need to submit a VAT return to HMRC every three months. As well as recording the VAT you have paid, you need to record the VAT you have charged to your clients. You also need to provide proof of purchases made. For this you need to keep either a valid VAT invoice, or a receipt from the retailer. Without these you will be unable to prove that you have paid this amount of VAT and your claim can be invalidated. An excellent way to keep track of the Vat you have paid on purchases is to use software like Dext, which allows you to record each receipt as you go. This type of technology is a huge asset to your busy, small business. Remember you also need to be able to prove that the purchase is an allowable expense. Prestige Business Management are the experts at helping you maintain tax efficiency with allowable expenses.
Do I Need an Accountant to Help me Reclaim VAT?
You can claim back VAT as a small business without the help of an accountant. However there are a few areas of expertise that can trip you up. For example, sometimes it is difficult to prove the goods and services are for business use. This is even trickier with some essentials which will inevitably be used for personal use too. One area we help our clients with a lot is splitting the cost of utilities when you spend a proportion or all of your time working from home, or in different locations. Another special skill is identifying an invalid VAT invoice from a supplier, because you won’t be able to use it for your claim. This can come in to play more often than you think, especially if you order goods or materials online. Furthermore you need to ensure that your VAT invoices are also valid, so your business customers can make their own VAT claims. These are all areas that hiring the right accountant will help you with, giving you peace of mind and keeping your small business compliant. They will also take away the hassle of filing your return, meaning you can concentrate on your business. Before you decide here is some more information about getting the best VAT advice for your small business.
At Prestige Business Management we can help Your Business
At Prestige Business Management we can help you understand and manage your business development and accounting. Find out what we can do for you. Call us today on 0203 773 2927.