Updated April 2024,
Question Submission Date: April 2022
Full question: “I work as an IT contractor and have a number of large company expenses, can I reclaim the VAT on those items?”
This is a good question, and an important one to answer as you don’t want to miss out on what VAT you can and cannot reclaim for your business.
Firstly, this question naturally only applies to VAT registered businesses. Again, if you are contemplating whether or not to be VAT registered, just a few points to remember. You can choose to voluntarily register for VAT at any time (providing your services are not VAT exempt), however, you are legally obliged to be VAT registered if your annual taxable turnover is more than £90,000 and you must ensure that you register within 30 days of the end of the month when you exceeded the
threshold.
Once you register you’ll be sent a VAT registration certificate which will confirm your VAT number (which you’ll need to show on invoices), notice of when to submit your first VAT return and your ‘effective date of registration’.
Once registered, there are lots of things that you can claim on, but you need to be clear about what is valid and what isn’t. In simplistic terms, you can only reclaim VAT on purchases specifically for your business that are tax deductible. These include:
- Computer equipment such as laptops, software, servers, maintenance if used solely for work purposes. If used 50% for work and 50% for leisure then you can only claim back 50%
- Stationery, which covers things like printer ink, postage costs, paper, business cards etc.
- Stock, which, depending on your small business type, could be raw materials purchased to produce items, or items bought for resale
- Commercial premises, including rent and utility bills for your office etc.
- Professional services needed to run your business including financial and legal costs
- Marketing which covers advertising of your business, samples you may need to produce and anything else you utilise to promote your small business
- Accommodation and subsistence costs if incurred during business trips
It’s worth noting that you can even claim for purchases made before you registered. This can be done once and there are limits as to how far back you can claim, but will most likely be beneficial, particularly as capital expenses (that your business is still using) can be claimed for purchases made as many as four years previously.
HMRC will need proof of these transactions comprising valid VAT invoices and/or receipts from retailers.
Your accountant will also be able to help you in the slightly trickier area where you purchase goods and services for your small business but also use them in your personal life. Here at Integro we can work those splits out for you and advise what you can claim.