What expenses can I reclaim VAT on?

If your business is VAT registered, one of the key advantages is being able to reclaim VAT on eligible purchases and expenses. This can significantly reduce your costs and improve cash flow, provided you follow HMRC’s rules.

Not every business purchase qualifies for VAT recovery, and some expenses are only partly reclaimable. Understanding which costs qualify and how to record them correctly ensures you claim everything you are entitled to while staying compliant.

This guide explains which expenses you can reclaim VAT on, the conditions that must be met, and how to handle tricky situations such as mixed-use expenses and entertainment costs.

How VAT recovery works

When your business buys goods or services, you usually pay VAT to the supplier. This VAT is called input tax. When you sell goods or services, you charge VAT to customers, known as output tax.

You can reclaim input VAT on most purchases that are used for your business. The VAT return then compares input tax and output tax. If you have paid more VAT on purchases than you have charged on sales, HMRC will refund the difference.

To reclaim VAT, you must:

• Be VAT registered.

• Use the goods or services for business purposes.

• Have a valid VAT invoice from a VAT-registered supplier.

VAT on business expenses you can reclaim

You can usually reclaim VAT on expenses that are wholly and exclusively for business use. Common examples include:

1. Office supplies and stationery
You can reclaim VAT on items such as paper, printer ink, pens, envelopes, and other everyday office supplies.

2. Computers, software, and equipment
VAT can be reclaimed on computers, laptops, phones, printers, and business software subscriptions, as long as they are used for business purposes.

3. Rent, utilities, and bills
If you rent commercial premises and your landlord charges VAT, you can reclaim it. The same applies to VAT on electricity, gas, water, and internet services used for business.

4. Business travel and accommodation
You can reclaim VAT on fuel, parking, train tickets, and hotels for business travel. However, you cannot reclaim VAT on travel between home and your regular workplace, as this counts as personal travel.

5. Vehicle costs
VAT recovery depends on how the vehicle is used:

• If a car is used only for business, you can reclaim all the VAT.

• If there is any private use, you generally cannot reclaim VAT on the purchase price but may reclaim VAT on running costs such as repairs and fuel.
  For vans and commercial vehicles used solely for business, VAT is usually reclaimable.

6. Business entertainment and hospitality
VAT on entertainment is usually not reclaimable if it involves entertaining clients, suppliers, or non-employees. However, VAT on staff entertainment—such as an annual party or team event—is reclaimable if it is for business purposes and open to all staff.

7. Professional services
VAT can be reclaimed on fees from accountants, solicitors, consultants, and other professional advisers, provided the services are for business use.

8. Advertising, marketing, and subscriptions
VAT on advertising and marketing costs—including online ads, website development, and printed materials—is reclaimable. Memberships or trade subscriptions used for business are also eligible.

9. Repairs, maintenance, and building work
If your business owns or rents commercial property, you can reclaim VAT on repairs and maintenance. For construction or renovation projects, the VAT treatment depends on whether the property is residential, commercial, or mixed use.

Expenses with partial VAT recovery

Some expenses are used for both business and personal purposes. In these cases, you can only reclaim the proportion of VAT that relates to business use.

Common examples include:

• Mobile phone bills if used for both personal and business calls, apportion the VAT claim based on estimated business use.

• Home office costs if you work from home, you can reclaim VAT on the portion of costs such as heating, internet, and electricity that relates to your business activity.

• Subscriptions or software if shared between business and personal use, only claim the business portion.

You must keep evidence to justify how you calculated the business-use percentage. HMRC expects claims to be reasonable and consistent.

Expenses you cannot reclaim VAT on

Certain costs are specifically excluded from VAT recovery, even if they relate to your business. These include:

• Business entertainment of clients or suppliers.

• Employee commuting costs to and from work.

• Personal goods or services.

• Parking fines or penalties.

• Goods or services used to make VAT-exempt supplies (unless you operate a partial exemption method).

If you buy goods or services for both taxable and exempt activities, you may be partially exempt and will need to calculate what proportion of VAT can be recovered.

VAT on employee expenses

If employees incur costs on behalf of your business—such as travel, accommodation, or client meetings—you can reclaim VAT on those expenses if:

• The employee was acting for the business.

• The expenses are supported by a valid VAT invoice made out to the business (not the employee personally).

If the invoice is in the employee’s name, you may still reclaim VAT if the payment was made on behalf of the business and it relates directly to business activity.

VAT on imports and purchases from abroad

If you buy goods or services from overseas suppliers, you may still be able to reclaim VAT, but the process differs depending on where the supplier is based.

• Imports from outside the UK: Import VAT is usually paid at the border and can be reclaimed as input tax if the goods are for business use.

• Purchases from the EU: You must account for VAT under the reverse charge mechanism and can usually reclaim it in the same VAT return.

For both, you need appropriate import documentation or invoices showing the VAT treatment.

Digital record keeping and Making Tax Digital

Under HMRC’s Making Tax Digital (MTD) rules, all VAT-registered businesses must keep digital records and file VAT returns through approved software such as Xero or QuickBooks.

To support VAT claims, you must keep digital copies of invoices and receipts showing:

• Supplier name and VAT number.

• Invoice date and description of goods or services.

• VAT rate and amount charged.

These records must be retained for at least six years.

Common mistakes when reclaiming VAT

Many businesses miss out on legitimate VAT recovery or make incorrect claims due to poor record keeping or misunderstanding the rules. Common errors include:

• Claiming VAT on invoices that are not valid VAT invoices.

• Forgetting to apportion VAT on mixed-use costs.

• Claiming VAT on personal expenses or non-business activities.

• Missing VAT reclaims on imports or reverse charge transactions.

Reviewing your VAT transactions regularly and reconciling them before filing each VAT return helps reduce errors.

Seeking professional advice

VAT can be complex, especially for businesses with partial exemption, mixed-use expenses, or international trade. A professional accountant can help you:

• Identify which expenses qualify for VAT recovery.

• Calculate partial exemption adjustments.

• Ensure records meet HMRC’s digital compliance standards.

• Maximise VAT recovery without risking penalties.

The bottom line

You can reclaim VAT on most expenses that are directly related to your business and supported by valid VAT invoices. This includes office costs, professional fees, business travel, and commercial property expenses.

However, VAT on personal use, client entertainment, and exempt activities cannot be reclaimed. Where expenses have both business and personal elements, only the business portion is recoverable.

By maintaining accurate records, using compatible accounting software, and seeking professional guidance where needed, you can manage VAT efficiently and ensure your business claims every penny it is entitled to.