What can I claim VAT back as a limited company?

VAT can be very simple to account for as long as you are charging it to your customers. What most people get wrong is the reclaiming process, which determines what your limited company can claim back.

If your limited company is VAT registered, you can generally reclaim tax on goods and services bought for taxable business activities. You must have been charged VAT and keep the right records to support your claim. Some expenses have special rules, so you may only be able to recover part of the amount or nothing at all.

In this guide, we explain what you can usually claim VAT back on through a limited company, where the restrictions sit and what to check before adding a claim to your Return.

How VAT reclaim works for a limited company?

A VAT-registered company may be able to recover the tax paid on goods and services bought for business purposes. The amount paid on these purchases is known as input VAT, while the tax charged to customers is output VAT.

When you complete your VAT return, you compare the input tax with the output amount collected from customers. This tells you how much you need to pay to HMRC or whether you are due a repayment.

Not every business expense qualifies for recovery. You may not be able to claim if the supplier did not charge VAT, the purchase was zero-rated or exempt, or the VAT is blocked from recovery. You can check the specific rules in HMRC’s guidance on reclaiming VAT on business expenses.

Before you claim VAT on a purchase, ask yourself five simple questions: Is your company VAT registered? Was VAT actually charged? Is the expense for taxable business activity? Is there any private use? Do you have the right evidence to support the claim?

Which business costs are restricted or blocked for VAT?

One of the most common mistakes is assuming that anything paid through the company bank account qualifies for recovery, it does not.

You generally cannot reclaim it on something that is purely for personal use, nor can it usually be recovered on costs used to make VAT-exempt supplies. HMRC also blocks recovery on entertaining or providing hospitality to business contacts, which means taking a client for lunch does not normally create a claim simply because you discussed business over the meal.

It is also important to distinguish between VAT that is blocked and VAT that was never charged. Public transport provides a good example because many UK passenger transport services are zero-rated, so although the journey may be entirely for business, there may be no tax on the ticket to reclaim.

The same principle applies when you buy from a supplier who is not VAT registered. The expense might be completely valid, but if there is no VAT on the invoice, there is nothing to recover.

Cars, fuel, travel and mixed-use costs need different treatment

Cars and mixed-use expenses are where VAT becomes more nuanced because the answer often depends on the actual circumstances rather than the name of the expense.

Cars, vans, fuel and business travel

Reclaiming VAT on vehicles and business travel depends largely on how you use the vehicle and the type of expense involved. For an ordinary company car, you usually cannot reclaim if it is available for private use, but you may reclaim all the VAT if it is used only for business and kept unavailable for private journeys.

Different rules can apply to vehicles used as taxis, for driving instruction or self-drive hire, while leased cars have separate rules. If you use a leased car for both business and private journeys, you can normally reclaim 50% of the tax on lease payments, while vans used for business may have different rules.

If you use a vehicle for both business and personal journeys, you can generally reclaim VAT on fuel for business travel if you keep suitable records, although a fuel scale charge may apply depending on how you claim.

Shared costs: phones, broadband, home working and personal use

Some costs are used for both work and personal purposes. That does not automatically mean you have to give up the claim. You can usually look at the business proportion and reclaim the VAT that relates to it.

The important thing is to use a reasonable basis when working out the business percentage. You should also keep records that show how you arrived at that figure. You should not simply choose a percentage without being able to explain or support it.

Real-world example: reclaiming VAT on a £1,200 laptop used 80% for business

Suppose your VAT-registered company buys a laptop for £1,200, including £200 of tax, and the laptop is genuinely used 80% for qualifying business activity and 20% privately.

Using a straightforward business-use apportionment, 80% of the £200 VAT would give a potential VAT reclaim of £160. The remaining £40 relates to private use and would not form part of that reclaim, while your records should explain how the 80% business-use figure was reached.

The numbers will differ from business to business, but the principle is useful: mixed use does not always mean no claim, although it often means you should not simply reclaim 100%.

Can you reclaim VAT on purchases made before VAT registration?

Registering for VAT does not mean every cost incurred beforehand is lost. HMRC allows businesses to reclaim VAT on certain qualifying purchases made before registration, which can benefit startups that invested in equipment or professional services.

For goods, the normal period is up to four years before registration, provided they are still held by the business or were used to make goods still held. For services, the period is normally six months, and the costs must relate to the business and its taxable activities.

A laptop bought two years before registration may qualify, while accountancy services purchased nine months earlier would normally fall outside the six-month limit. Pre-incorporation purchases have separate rules and may qualify where specific conditions, including company reimbursement, are met.

We can help businesses review these earlier costs, check whether they meet the relevant conditions and keep the right records. Check out our accounting services to see how we can support you with bookkeeping, VAT Returns and other essential accounting needs.

VAT invoices, records and evidence you need to keep

Keeping good VAT records is important because they show why your company was able to reclaim it. It is not just about keeping your bookkeeping organised.

HMRC requires VAT-registered businesses to keep records of their purchases and sales, invoices and any adjustments. Some of this information must also be kept digitally under Making Tax Digital for VAT, unless an exemption applies. You normally need to keep the records for at least six years.

When checking an expense, do not rely only on the bank payment. Check the invoice and make sure it shows:

• The supplier and what you bought
• The VAT charged
• The amount paid

If an expense has both business and personal use, you should also keep a reasonable calculation to show how you worked out the business share.

Directors can pay company expenses personally, provided the expense was incurred for the business and the invoice and reimbursement record are kept as evidence.

The scheme your business uses also affects what you can reclaim. Under the Flat Rate Scheme, you generally cannot recover tax on everyday purchases, although some qualifying capital assets costing more than £2,000 including tax may still be eligible for recovery.

Make the most of your VAT with Rise Accounting

Getting VAT right is not about claiming every pound possible. It is about knowing what your company can genuinely recover, keeping the right records and understanding which expenses have special rules.

At Rise Accounting, our accounting team can help keep your bookkeeping and VAT returns in order, giving you confidence that your finances are in good hands. We can also take care of other essential tasks, from year-end accounts to the day-to-day financial needs of your business.

If you have questions about what you can reclaim in VAT or want someone to take a look at your finances, talk to our experts today.

Frequently asked questions