The Top Ten Items Your Limited Company Can Reclaim VAT on
The question of when VAT is recoverable and when it isn’t is very common, so in this article we’re looking at the ten most common items contractors can reclaim the VAT on through a Limited company.
It’s important to note that this only applies if you’re registered on the Standard Rate VAT scheme; you can’t reclaim VAT on your expenses if you’re registered on the Flat Rate VAT scheme.
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, you can only reclaim the business portion of the VAT.
Accountancy Fees
If you’re contracting through a Limited company, it’s likely that you’ve engaged a specialist accountant, and if you haven’t then we strongly recommend that you do. Any fees incurred by your business are a legitimate expense, and any VAT charged can be recovered.
IT Equipment and Software
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.
Internet, telephone and mobile
If you have a separate business line of connection, 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 mobile phone calls are private, you can reclaim 50% of the VAT.
Accommodation costs
You can reclaim VAT paid on hotel accommodation while you’re travelling on business. It’s important to ensure you can obtain a VAT invoice in the name of your company, and booking online can complicate this. This could leave you booking directly with the hotel, rather than using a booking website, and obtaining a hard-copy VAT receipt at checkout.
Food and drink
Where an expense claim for subsistence is allowed (necessary costs 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. In the UK most food items you’d buy from the shops or supermarket for human consumption are zero rate VAT. But meals you’d eat in a restaurant or takeaways are standard rate VAT.
Stationary
You can reclaim the VAT paid on any stationary items including business cards, printer ink, headed paper and anything else purchased for your business.
Marketing costs
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.
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.
Legal and professional fees
VAT on legal and professional fees incurred by your business 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 two main 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.
If you’re not with us yet and have questions about this issue, or if we can help in any way, please contact our expert team on 01296 468185 or email [email protected].
