When you can’t reclaim VAT

For most fully taxable businesses, VAT can be reclaimed on goods and services used in the business. This means that businesses must consider where there is any personal or private use of goods or services purchased for the business as the business can only reclaim the business proportion of the VAT.

For example, VAT is recoverable on all the costs of mobile phones provided to employees where no personal use is allowed. Where businesses allow private calls to be made at no charge, the VAT recovery must be apportioned on a fair and reasonable basis. Where employees pay for the private use of their phones, the business is allowed to reclaim the input tax in full provided an output tax charge is accounted for in respect of private use payments received from employees.

You cannot reclaim VAT for:

• anything that’s only for private use;
• goods and services your business uses to make VAT-exempt supplies;
• business entertainment costs;
• anything you’ve bought from other EU countries (you may be able to reclaim VAT charged under the electronic cross-border refund system);
• goods sold to you under one of the VAT second-hand margin schemes;
• business assets that are transferred to you as a going concern.

There are different rules for a business that incurs expenditure on taxable and exempt business activities. These businesses are partially exempt for VAT purposes and are required to make an apportionment between their taxable and exempt activities using a ‘partial exemption method’ in order to calculate how much input tax is recoverable.

Planning note

If you have concerns that you may be under or over-claiming VAT, please call, we would be delighted to offer an opinion, and if required, takeover your VAT filing duties.

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