Which items can your limited company reclaim VAT on?

You can usually reclaim the VAT paid on goods and services purchased for use in your business. If a purchase is also for personal or private use, as well as business use, you can only reclaim the business portion of the VAT.

Accountancy Fees:

If you’re contracting through a Limited company, known as a PSC, you’ve may have engaged a specialist contractor accountant, to assist you but if you haven’t considered this route, do consider one. An accountant can assist you with all your administration, payroll etc. Any accountancy fees incurred by your business are a legitimate expense, and any VAT charged can be recovered.

IT Equipment and Marketing:

As long as it’s only used for business, you can reclaim VAT paid on both hardware and software, including subscriptions plans like Office 365 and Adobe Creative Cloud.

You can reclaim the VAT on marketing costs for your business, including the cost of building hosting and maintaining a website, as well as advertising and promotions.

Internet, telephone and mobile

If you have a separate business line of connection, either landline or mobile you can claim all the VAT paid on the purchase price and service plan. If you’re using the same service for private use, you can reclaim the percentage that was used for business. For example, if half your phone calls are private, you can reclaim 50% of the VAT invoiced.

Accommodation costs

You can reclaim VAT paid on the hotel accommodation you use while you’re travelling on business. You must ensure you can obtain a VAT invoice in the name of your company, ensure if you are booking online there is the option of listing the company name on the booking.

Food and drink

Where an expense claim for food and drink, purchased as a necessary expense while you’re away from your normal place of work, you can reclaim the VAT paid on food and drink. Be sure to check the rate that was charged, as there has been a limited temporary reduction to 5% due to the Covid-19 pandemic. If you use HMRC’s subsistence allowance claim rules of either £5 or £10 per day, then reclaiming VAT is not allowed.

Stationary

You can reclaim the VAT paid on such stationary items as business cards, printer ink, headed paper and anything else purchased for your business. If you obtain printer ink through a yearly subscription service, ensure you obtain a statement from the supplier.

Motoring costs

If your vehicle is used exclusively for business, you can reclaim all the VAT paid on the purchase and running costs. You may need to prove to HMRC that the vehicle is not available for personal use. If you lease a car, you can claim 100% of the cost if it’s leased for less than 10 days and it’s used exclusively for business. Otherwise, you may be able to claim up to 50% of the lease cost.

If you choose to use HMRC’s Mileage rules, you don’t claim the purchase, running costs expenses, and therefore can’t claim the VAT.

Legal and professional fees

Any legal and professional fees used by the business that incurs VAT, the VAT can be reclaimed. This does not apply where legal fees are incurred when defending criminal charges.

Consultancy fees

If you engage the services of a consultant or independent advisor, they may charge VAT and if they do, you can reclaim it, providing their advice is needed for business reasons. For example, engaging an IR35 expert to report on your latest contract may fall into this category.

When you can’t reclaim VAT.

There are circumstances when VAT can’t be reclaimed on an item – where VAT is not paid, and where the item doesn’t qualify as a legitimate business expense.

Examples include:

Insurance

Insurance transactions are exempt from VAT

Books

Printed books and e-books are zero rated for VAT, so there’s nothing to reclaim. However, you will pay VAT on audio-books, and this could be reclaimed if the content was a legitimate business expense.

Travel

Most travel costs, including train, bus and air fares are VAT free, so again there is nothing to reclaim. The cost of flights may include a charge for Air Passenger Duty, but this is a separate tax and cannot be reclaimed on your VAT return.