Reclaiming VAT for Small Businesses

According to ACCA Global, more than 80% of the VAT (Value-Added Tax) businesses incur on expenses, can be reclaimed. Entertainment and travel expenses represent approximately 12% of business operating costs. Majority of small businesses tend to under claim or not claim at all because they don’t have sufficient information.

VAT - Value-Added Tax

Claiming Back Your VAT

Reclaiming VAT is possible on input tax, which includes goods or services purchased by your business. This is as long as you make reduced, standard, or zero-rated supplies. Always confirm an invoice’s VAT registration number to ensure it’s valid.

Even though you can begin the reclaiming process after completing VAT registration, you can claim back VAT paid before you were registered. You can reclaim on goods you bought a maximum of four years before registration and six months for services.

To claim back VAT, a set of conditions must be fulfilled. The expenditure incurred must be directly related to your business including overheads and goods for resale. To reclaim, an accurate VAT invoice issued by a VAT registered company must be submitted. Incorrectly charged VAT cannot be claimed back.

VAT Accounting Schemes

As a small business, there are a number of ways you can reclaim VAT to save money and time. These are ideal for reducing the amount of administration involved and the amount of VAT is the same. The UK Government identifies the following schemes.

1. The Cash Accounting System

Your business calculates liability based on payments made and received instead of invoices or the tax point. This option works if your estimated VAT turnover for the upcoming year is between £1.35 million and £1.6 million. It can offer you relief from bad debts because no VAT is expected if no payment was received.

Reclaiming VAT should be done on pre-registration purchases during the first VAT return, to prevent claims from being blocked. You can make cash purchases as the VAT quarter nears the end, to reclaim VAT quickly. Track payments and receipts meticulously.

2. The Flat Rate Scheme

VAT is paid as a fixed percentage of your business’s VAT-inclusive turnover. This flat rate applies to reduced, zero-rated turnover, standard rate turnover, and exempt income. The turnover depends on your business category and varies from 4 to 14.5%. If your businesses is within its first year of VAT registration, a 1% VAT reduction is offered.

You can use this scheme if your estimated VAT turnover for the next 12 months is between £150,000 and £230,000. Typically in this scheme, input VAT cannot be reclaimed unless it is linked to over £2,000 capital expenditure (including VAT). Reclaiming VAT on employee travel expenses is allowed but not when you pay the staff for flat rate expenses.

Annual Accounting Scheme

3. The Annual Accounting Scheme

This scheme allows you to file only one VAT return a year. A cash flow advantage may occur if your turnover is increasing. It may occur if your trade has a seasonal pattern and you make the final payment a month later than normal.

You can make three quarterly or nine equal monthly VAT payments. A balancing payment is required when you submit the annual confirmation. These payments depend on total VAT liability for the previous year or future turnover estimate for new companies.


If you haven’t been reclaiming VAT, begin now. Learn all you can on what is expected, and keep your invoices well. Select the accounting scheme that works best and start making savings.