How to claim a VAT refund in the UK

Ever felt like you’re navigating a labyrinth when it comes to Value Added Tax (VAT) in the UK? You’re definitely not alone! Many businesses and even some individuals find the process of claiming a VAT refund in the UK a bit daunting. But fear not, because understanding how to successfully reclaim VAT can make a real difference to your bottom line. This comprehensive guide aims to demystify the process, making it as clear and straightforward as possible, so you can confidently get back the VAT you’re owed.

Who Can Actually Claim UK VAT Back?

The first hurdle to clear is understanding if you’re even eligible to claim. It’s crucial because the rules differ depending on your situation.

• UK VAT-Registered Businesses: If you run a business that’s registered for VAT in the UK, this is where you’ll typically be looking to reclaim VAT on business expenses. This includes everything from the humble office stationery to larger capital expenditures like new equipment. Remember, once your turnover hits a certain threshold (currently £90,000), VAT registration becomes mandatory. However, you can also voluntarily register for VAT even if you’re below this threshold, which can be a smart move if you incur a lot of VATable expenses.
• Non-UK Businesses: Are you a business based outside the UK but incurred VAT on purchases made here? You might be able to use the government’s VAT refund scheme for non-UK businesses. This is particularly relevant if you’ve attended trade fairs, had accommodation and meals during business trips, or incurred other business travel costs. You’ll generally need to show you don’t have a fixed place of business in the UK and aren’t supplying goods or services within the country (with some specific exceptions).
• Individuals/Tourists: This is a common point of confusion. As of January 1, 2021, the UK government discontinued the VAT refund scheme for tourists. So, if you’re visiting for leisure, unfortunately, you won’t be able to reclaim VAT on your shopping. However, some large retailers offer “shop and ship” services, sending goods directly to your home country without charging VAT, which can be a good alternative for those big purchases.

What Kind of VAT Can You Reclaim?

So, you’re eligible. Great! Now, what exactly can you get money back on?

• 💡 General Business Expenses: This is the most common area. Think office supplies, utility bills for your business premises, certain professional services, and stock purchases. If it’s directly used for your taxable business activities, it’s likely reclaimable.
• ✈️ Business Travel and Accommodation: If you or your employees are travelling for business, VAT on things like hotel stays, meals, and other travel costs (including 50% of VAT on car leasing/hiring for business use) can often be reclaimed.
• 🚢 Imports: If your business imports goods into the UK, you might have paid VAT at the point of import. In many cases, this import VAT can be reclaimed, especially if you use Postponed VAT Accounting (PVA), which allows you to account for import VAT on your VAT return rather than paying it upfront. This significantly helps with cash flow!
• 🖥️ Capital Expenses: Bought a new computer, machinery, or other large assets for your business? You can typically reclaim the VAT on these capital expenses. And here’s a neat trick for newly VAT-registered businesses: you can often reclaim VAT on capital expenses purchased up to four years before you registered, as long as you still own and use those assets in your business.

The UK VAT Refund Process: Step-by-Step

Navigating the actual process can feel a bit like a treasure hunt, but with the right map, it’s manageable.

• 📝 Keep Meticulous Records: This cannot be stressed enough! For every item you want to claim VAT on, you must have a valid VAT invoice. This invoice needs to clearly show the supplier’s name and VAT number, the date, a description of the goods or services, the net price, and the VAT amount. No invoice, no refund!
• 📊 Regular VAT Returns (for UK VAT-registered businesses): Most UK VAT-registered businesses submit VAT returns quarterly. This is where you declare the VAT you’ve charged to your customers (output VAT) and the VAT you’ve paid on your purchases (input VAT). If your input VAT is higher than your output VAT, HMRC will owe you a refund. You’ll typically submit these using MTD-compliant software.
• 🌍 Specific Forms for Non-UK Businesses: If you’re a non-UK business, you’ll generally use form VAT65A (Application for refund of VAT). You’ll also need an official certificate from your home country’s tax authority proving your business registration, which is valid for 12 months.
• ⏰ Deadlines Matter! This is crucial. For non-UK businesses claiming VAT, the “prescribed year” runs from 1 July to 30 June. You must submit your claim no later than 6 months after the end of that prescribed year (so by 31 December). If you miss it, you’ll lose out! For UK businesses, VAT returns are generally due one month and seven days after the end of your VAT accounting period. Don’t be late; penalties can apply.
• ✨ Minimum Claim Amounts: There are minimums for non-UK businesses to claim. For claims covering 3 to 12 months, it’s £130. For a whole calendar year (or less than 3 months if it’s the remainder of the year), it’s £16.

Common Pitfalls to Avoid When Reclaiming VAT

Even with the best intentions, mistakes can happen. Here are some common traps to steer clear of:

• 🚫 Missing or Invalid Invoices: This is a big one! HMRC is strict about requiring proper VAT invoices. Double-check all details before submitting your claim. If you don’t have one, contact your supplier immediately.
• 🏠 Reclaiming VAT on Non-Business Expenses: You can only reclaim VAT on goods and services used specifically for your business. Personal use items, or business entertainment costs, are generally not reclaimable.
• ⛽ Incorrectly Applying Fuel Scale Charges: If your business vehicles are used for both business and private travel, the rules around reclaiming VAT on fuel can be complex. You might need to apply a fuel scale charge. Get this wrong, and it could lead to an HMRC investigation.
• 💰 Not Accounting for VAT on Deposits: If you receive a deposit or advance payment from a customer, VAT might be due on that even if the goods or services haven’t been supplied yet. Failing to report this can lead to underreporting.
• 🗓️ Ignoring Deadlines: We’ve mentioned it, but it bears repeating. Late claims mean lost money. Set reminders!
• 🧑‍💼 Not Seeking Professional Advice: VAT can be incredibly intricate, especially for complex business structures or international transactions. A qualified accountant or VAT advisor can save you a lot of headaches (and money!) by ensuring compliance and maximising your reclaim.

What Happens After You Claim?

Once you’ve submitted your VAT refund claim, HMRC will process it. For non-UK businesses, HMRC typically aims to pay any refund due within six months, provided all information is correct and no further details are needed. They’ll return your original invoices once the claim is approved.

If your claim is refused, HMRC will explain why. You’ll usually have options to either ask HMRC to review the decision or appeal to an independent tribunal if you disagree.

In Conclusion

Claiming a VAT refund in the UK doesn’t have to be a bewildering experience. By understanding who’s eligible, what you can claim for, and meticulously following the process, you can ensure your business or even your overseas visits are as cost-effective as possible. While the VAT rules can be detailed, remember that proper record-keeping and a clear understanding of the guidelines are your best friends in successfully navigating the system. Don’t leave money on the table; get that VAT back!