VAT is essentially not supposed to be a burden on companies; hence, the HRMC has made provisions for VAT registered companies can reclaim VAT paid via VAT returns. In recent times the “Making Tax Digital for VAT” is a digital VAT software that allows all tax returns to be regularly submitted to the HRMC. However, non-MDT for VAT companies can still submit their VAT returns online for refund.
The HRMC makes provisions for VAT refunds to be made based off the information from the VAT returns.
WHAT YOU CAN CLAIM AS A VAT REFUND:
Usually, VAT is refunded on goods and services purchases in the course of running your business. However, in situations where these purchases are both for private and personal use, you can only reclaim a refund on the business proportion of the VAT. For instance, if you work from home and your company takes up about 40% of your floor space, then on your utility bill, you may claim a refund of 40% VAT.
Records supporting your claim and showing how you have arrived at the business proportion of your claim have to be kept, that is, you must have valid invoices. The MDT for VAT accounting software makes tax returns record keeping a lot easier as it regularly updates all data to the HRMC.
WHEN YOU CANNOT CLAIM A VAT REFUND:
However, you cannot claim a VAT refund for purchases that are for private use and unrelated to your business. You also cannot claim a VAT refund for goods and services that are used in making VAT-exempt supplies.
You also cannot claim a refund on business entertainment costs for office parties or launches.
VAT REFUNDS FOR PURCHASES BEFORE REGISTRATION
VAT refunds can still be claimed goods and services purchased before you registered your company as a VAT. VAT can be reclaimed on goods bought up to 4 years before VAT registration and also on services acquired or rendered 6 months before registration. However, they must be:
- Bought for your VAT taxable purpose
- Still be owned by you
- Bought by you, a now registered VAT entity
VAT refunds can also be reclaimed on services up to 6 months before you registered if:
- These services are bought by you as the entity.
- Services for your VAT taxable business purposes.
However, these VAT on already purchased goods cannot be reclaimed on:
- Goods that have been used up before your VAT registration
- Goods that you have sold but are VAT registered
- Goods from supplies that are VAT exempt.
In the same vein, VAT refunds cannot be claimed on services if they:
- Relate to good already disposed of before you were VAT registered.
- Services that relate to goods or services supplies which are VAT exempt.
BEFORE YOU MAKE A VAT REFUND CLAIM
Before making a claim for a refund on your VAT, you must ensure that the following are checked and confirmed to be true:
- The purchases were strictly or partly for business purposes.
- The purchases are not blocked for VAT reclaims
- That you have a valid VAT invoice
HOW TO SPOT A VALID VAT INVOICE
To properly file for a VAT refund, you need to ensure that your VAT invoice is valid as it might be an inconvenience to file a vital return only to discover that you might have let out vital information. To spot a valid VAT invoice, here are a few things to look out for:
- The supplier’s name, address, invoice number and VAT registration number
- Your business name and address
- The time of supply of the goods or services as well as the date of issue
- The description of the goods or services supplied.
- The total amount excluding VAT
Retailers sometimes issue far less detailed invoices for purchases up to £250, these invoices must however still contain significant details such as the name, address and vat number of the seller, as well as the nature and VAT on the goods sold before they can be considered valid. It is essential that these invoices are confirmed valid or your claim would be rejected.
These VAT invoices must be issued within 30 days of the supply or payment date. VAT refund claims might be rejected if the VAT invoices are counted as invalid. Suppliers’ statements, delivery notes, pro-forma invoice all count as “invalid” invoice.
HOW YOUR VAT REFUND IS PAID
After submitting a VAT return to the HRMC, you can then claim a VAT refund, your VAT returns could be submitted online if your business does not surpass the HRMC threshold for VAT and as such is not MDT for VAT compliant.
You need to provide the HRMC with your account details even if you must have set up a Direct Debit for VAT Returns. To add or change these account details you have to go to the registration details in your VAT online account .
All refunds you are being owed can be viewed using your online account, the only limitation being if you have signed up for “Making Tax Digital for VAT” (MDT for VAT).
Once this submission has been made, the HRMC can choose either to accept or reject your claim.
All accepted VAT refund claims are usually refunded within 10 days of the HRMC receiving your return; however, it might sometimes take longer.
If after 30 days of filing for a refund you have not heard anything, then go on to contact the HRMC.
Before making VAT refund claims to the HRMC, there are conditions which must have been met before your claim should be filed, if these conditions are not met, your claim may be dismissed or you might even be fined. This 20% tax levy may be refunded on all expenses incurred in running your business.