Claiming Back VAT in the UK: A Complete Guide

I remember talking to a friend who runs a small design agency in London. After making a big purchase—new computers and office furniture—he casually mentioned, “At least I can claim back the VAT.” But when I asked how he planned to do it, he wasn’t entirely sure. That’s a common situation—many UK businesses and self-employed professionals don’t fully understand how to reclaim VAT, missing out on money they’re entitled to. Claiming back VAT in the UK can be a game-changer for businesses, helping to reduce costs and improve cash flow. According to HMRC, businesses collectively reclaim billions of pounds in VAT refunds each year. But thousands of business owners and self-employed individuals fail to claim back what they’re owed, either because they don’t keep the right records or simply don’t realize they’re eligible.

If you’ve ever bought equipment, software, or services for your business, you might be sitting on a VAT refund without even knowing it. In this guide, I’ll break down how VAT refunds work, who qualifies, and how you can claim back VAT efficiently to maximize your financial returns.

What is VAT?

VAT (Value Added Tax) is a 20% tax applied to most goods and services sold in the UK. It’s added at every stage of the supply chain—from manufacturing to the final sale. Businesses registered for VAT can reclaim the VAT they pay on business expenses, ensuring they’re not left out of pocket.

Who Can Claim VAT Back?

VAT refunds aren’t available to everyone—only VAT-registered businesses can reclaim VAT on qualifying expenses. Here’s who qualifies:

• Limited Companies – If your company is VAT-registered, you can reclaim VAT on business purchases.
• Sole Traders & Freelancers – If you’re VAT-registered, you can claim VAT on eligible business expenses (e.g., office rent, travel, software).
• Partnerships & LLPs – VAT-registered partnerships can reclaim VAT on expenses shared across the business.
• E-commerce Sellers & Importers – If you’re importing goods or selling VAT-eligible products, you can reclaim VAT on purchases.

💡 Important: You must be VAT-registered to claim back VAT. If your business turnover is below £85,000, VAT registration is optional, but registering might still be beneficial if you regularly pay VAT on business expenses.

How to Claim Back VAT as a Business in the UK

If your business is VAT-registered, you are eligible to reclaim VAT on business expenses—but to ensure a successful claim, you need to maintain proper records, understand what qualifies for a refund, and follow HMRC’s VAT return procedures. Here’s a step-by-step breakdown to help you reclaim VAT efficiently.

Step #1: Ensure You Are VAT-Registered

Before you can reclaim VAT, you must officially register your business for VAT with HMRC.

How to Register for VAT

1. Apply for VAT Registration Online

• Go to GOV.UK VAT Registration Portal and apply online.
• You’ll need to provide details about your business, turnover, and expected VAT-taxable sales.

2. Receive Your VAT Number

• Once approved, HMRC will issue your VAT number within 14–30 days.
• You cannot charge VAT or reclaim VAT until you receive this number.

3. Choose a VAT Accounting Scheme

There are different VAT schemes available based on your business type, size, and financial situation:

💡 Tip: VAT registration is mandatory if your turnover exceeds £85,000 in 12 months. However, you can voluntarily register even if your turnover is below this threshold, which may help if you frequently reclaim VAT on purchases.

Step #2: Keep Accurate VAT Records

HMRC requires businesses to maintain clear and accurate records of their VAT transactions. Proper documentation is essential to avoid rejected claims, penalties, or VAT fraud investigations.

Key Documents You Need for VAT Reclaims

✔ VAT Invoices: Every business purchase you reclaim VAT on must have a valid VAT invoice. The invoice should include:

• Supplier’s VAT number
• The amount of VAT charged (clearly itemized)
• Date of purchase and supplier details
• Description of goods or services

✔ Receipts & Contracts:

• Keep receipts and proof of payments for small purchases.
• For long-term service contracts (e.g., software, leasing, consulting), ensure that VAT details are clearly outlined in agreements.

✔ VAT Calculation Records:

• You must track how much VAT you’ve paid vs. how much you’re reclaiming.
• The difference is reported in your VAT return.

VAT-Eligible Expenses

To successfully reclaim VAT, expenses must be business-related and must have VAT included in the invoice. Below are common VAT-eligible expenses:

💡 Tip: Use cloud-based accounting software like QuickBooks, Xero, or FreeAgent to automate VAT tracking and avoid missing any claimable VAT.

Step #3: File Your VAT Return via HMRC

To claim your VAT refund, you must submit a VAT return to HMRC, reporting the VAT paid on purchases vs. VAT collected from sales. If you’ve paid more VAT on purchases than you’ve charged to customers, HMRC will refund the difference.

How to Submit a VAT Return

1. Log into HMRC’s Making Tax Digital (MTD) Portal
   
   • As of April 2022, all VAT-registered businesses must file returns digitally via MTD-compatible software.
2. Enter Your VAT Details
   
   • Report VAT you’ve charged on sales.
   • Report VAT you’ve paid on purchases.
3. Calculate the Refund
   
   • If VAT paid on purchases is greater than VAT collected on sales, you qualify for a VAT refund.
   • If you collected more VAT than you paid, you must pay the difference to HMRC.
4. Submit Your VAT Return
   
   • VAT returns are due quarterly, and HMRC processes most refunds within 10 days.

Example: VAT Reclaim Calculation

Let’s say your business had the following VAT transactions:

Since your VAT paid is higher than VAT collected, HMRC owes you £700 in a refund.

💡 Tip: Always file your VAT return on time (quarterly deadlines apply). Late submissions can delay refunds or result in penalties.

Common Mistakes When Claiming Back VAT

While VAT refunds can help businesses recover costs and improve cash flow, many businesses make avoidable mistakes that can lead to delayed refunds, audits, or even penalties from HMRC. Below are the most common VAT reclaim mistakes and how to avoid them.

Mistake #1: Claiming VAT on Ineligible Expenses

Not all business expenses are VAT-eligible. Many businesses incorrectly claim VAT on items that HMRC does not allow, such as:

• Client Entertainment – Meals, drinks, corporate hospitality.
• Company Cars for Personal Use – VAT cannot be reclaimed if the car is used personally.
• Rent & Residential Properties – Most commercial rent is VAT-exempt unless the landlord has opted into VAT.
• Overseas Purchases – If you buy goods/services from outside the UK, VAT rules are different (you may need to use Reverse Charge VAT Accounting).

💡 Solution: Always check GOV.UK VAT guidelines before submitting your return. Use accounting software like QuickBooks or Xero, which flags ineligible expenses.

Mistake #2: Missing VAT Deadlines

VAT returns must be filed quarterly, with strict deadlines set by HMRC. Many businesses miss deadlines, leading to:

• Delayed VAT refunds – If your return is late, HMRC won’t process your claim until you file.
• Penalties & Interest Charges – Repeated late filings can lead to surcharges of up to 15% of the VAT due.

💡 Solution: Set automatic reminders for VAT filing deadlines using HMRC’s VAT portal or your accounting software.

Mistake #3: Failing to Keep Proper VAT Records

HMRC requires businesses to store VAT records for at least six years. If you are audited and don’t have the right documentation, you could face penalties or repayment demands.

✔ Common Record-Keeping Errors:

• Losing VAT invoices.
• Not tracking VAT on expenses correctly.
• Using estimates instead of actual figures.

💡 Solution: Use cloud-based bookkeeping tools like Xero or FreeAgent to store digital copies of invoices and receipts.

Mistake #4: Overclaiming VAT

Overclaiming VAT—whether intentionally or by accident—is considered tax fraud and can result in serious penalties.

✔ Common overclaiming mistakes:

• Claiming personal expenses as business expenses.
• Claiming VAT on zero-rated or VAT-exempt goods/services.
• Entering incorrect VAT amounts when filing returns.

💡 Solution: Cross-check your VAT return before submitting. If you realize you’ve overclaimed, notify HMRC immediately to avoid penalties.

Claiming VAT Back as a Tourist in the UK

Many visitors assume they can claim VAT refunds at UK airports, but the UK removed the VAT Retail Export Scheme in 2021. However, certain visitors can still claim VAT refunds through alternative methods.

Who Can Claim VAT Back?

• Non-UK Businesses – If your business is based outside the UK, you can apply for a VAT refund under the VAT Refund Scheme for Businesses.
• Diplomats & Foreign Embassies – VAT exemptions apply for diplomatic staff and embassies.
• Business Travelers – If you’re attending trade shows or purchasing goods for resale, you may be able to claim VAT back through your home country’s tax authorities.

💡 Tourists can no longer claim VAT refunds on shopping. The only exceptions are certain business transactions and specific government schemes.

How Tourists Can Get a VAT Refund from the UK

Since VAT-free shopping ended in 2021, tourists can no longer claim VAT refunds at airports like Heathrow. However, there are alternative options:

• Shopping Online & Exporting – Some UK retailers still allow non-UK residents to shop tax-free online if the goods are shipped directly to their home country.
• Business Purchases – If you’re buying goods for your company, you may be able to reclaim VAT through the UK’s Overseas Refund Scheme.
• EU VAT Refunds – Businesses in the EU can reclaim UK VAT under the 8th Directive Refund Scheme.

💡 Solution: Tourists should check with retailers before purchasing to see if VAT-free shopping options are available.

Frequently Asked Questions on VAT Refunds

Below are detailed answers to the most common questions about VAT reclaims in the UK.

Can tourists claim VAT back in the UK?

No, the UK no longer offers VAT refunds for tourists after abolishing the Retail Export Scheme in 2021.

Alternative Options:

• Some retailers offer VAT-free shopping online, but only if the goods are shipped directly outside the UK.
• Business visitors may still claim VAT back if the purchase was for a company in another country.

💡 Tip: Tourists should shop at duty-free stores or buy from retailers offering direct VAT-free exports.

Can I claim VAT back on a UK purchase?

✔ Yes, but only if you’re VAT-registered.

• Business Owners & Self-Employed Individuals – You can claim VAT back on purchases related to your business.
• Tourists & Non-UK Residents – You cannot claim VAT back on personal shopping but may qualify if the goods are exported.

💡 Tip: Ensure your VAT invoice includes your business details for successful claims.

Can UK VAT be refunded?

Yes, VAT refunds are available for:

• VAT-registered UK businesses that pay more VAT on purchases than they charge on sales.
• Foreign businesses that buy VAT-taxable goods/services in the UK (if eligible for an overseas refund scheme).

No refund is available for private individuals.

💡 Tip: Use HMRC’s Making Tax Digital system to track VAT and submit claims on time.

Can I claim VAT back at Heathrow?

No, VAT refund kiosks were removed in 2021.

Business Travelers & Diplomats can still apply for VAT refunds through HMRC’s VAT refund process.

💡 Tip: If shopping in the UK, check if the retailer offers VAT-free export options.

Key Takeaways 

1. UK businesses can claim VAT refunds, but only if they are VAT-registered.
2. Tourists cannot claim VAT refunds on shopping since 2021, but some online VAT-free options exist.
3. Businesses must keep detailed VAT records for at least six years to avoid issues with HMRC.
4. Late VAT filings result in refund delays and possible penalties—always submit returns on time.
5. Common VAT refund mistakes include overclaiming, missing invoices, and claiming ineligible expenses.

Final Thoughts 

For VAT-registered businesses, claiming back VAT is essential to reducing costs and maintaining healthy cash flow. However, record-keeping mistakes missed deadlines, and incorrect claims can result in rejected refunds or audits.

For non-UK residents, VAT refund options have changed significantly since Brexit, making it important to explore alternatives like VAT-free shopping and business refund schemes.

💡 Are you tracking your VAT correctly, or could you be missing out on potential refunds?

Related Articles

• What Is A Private Sector?
• Vat Accounting: Definition, Overview, & Examples
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• Best Loans for Startup Companies in the UK
• TAX MANAGEMENT: Definition, Tax Risk Management & All You Need to Know

References

• GOV.UK
• Sage