VAT on Business Expenses: What You Can and Cannot Reclaim

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Last updated 23 October 2026. Written by the Limited Company Accountant UK team, part of Accotax. Figures are for the 2026/27 tax year; always check GOV.UK for the latest rates.

Short answer: A VAT-registered company can reclaim the VAT it pays on goods and services used for taxable business activities, provided it holds a valid VAT invoice. You cannot reclaim VAT on business entertainment, most cars bought for private use, items for personal use, or costs relating to exempt supplies without special rules.

Key facts

Condition	Valid VAT invoice and business use
Cannot reclaim	Client entertainment, personal items
Cars	Only if used exclusively for business or as a taxi or lease-hire
Fuel	Fuel scale charge or business proportion
Time limit	Usually four years, six months for services before registration

The basic rule for reclaiming input VAT

When your company is VAT-registered, it charges VAT on its sales, known as output VAT, and pays VAT on its purchases, known as input VAT. The difference between the two is what you pay to HMRC, or reclaim if input exceeds output. For input VAT to be reclaimable, three conditions must be met. The purchase must be for the business, it must relate to taxable supplies that the company makes, and you must hold a valid VAT invoice showing the supplier’s VAT number.

This sounds simple, but problems arise with mixed-use items, special categories and missing invoices. The sections below walk through the areas where directors most often ask questions, so you can claim confidently and avoid errors that HMRC may challenge on inspection.

Everyday costs where VAT can be reclaimed

Most standard business purchases carry VAT that can be reclaimed in full. Typical examples include office equipment and computers, software subscriptions from VAT-registered suppliers, professional fees from accountants and solicitors, advertising and marketing, phone and broadband contracts for business use, stationery and printing, and repairs and maintenance of business premises.

The VAT must be shown on a valid invoice or a simplified receipt for small amounts. For purchases under £250 including VAT, a simplified invoice showing the supplier’s name, address, VAT number, date and the VAT-inclusive amount is enough. Keep the document with your bookkeeping record, because HMRC may ask to see it for up to six years.

Business entertainment and gifts

VAT on business entertainment cannot be reclaimed. That includes meals, drinks, event tickets and hospitality for clients, customers or suppliers. The rule exists because HMRC treats such spending as having a private or social element, and it applies even where the entertainment has a genuine business purpose.

Staff entertainment is treated differently. VAT on a staff party or a meal for employees can be reclaimed, but if clients attend, the share relating to them is blocked. Gifts to customers have their own rule. VAT can be reclaimed on a gift worth £50 or less per person in a year, but it generally cannot be reclaimed on a more expensive gift without being treated as a taxable supply on which VAT is due.

Cars, vans and fuel

Cars are a common trap. VAT on the purchase of a car cannot normally be reclaimed if there is any private use, which includes home to work travel in many cases. It can be reclaimed if the car is used exclusively for business, such as a pool car or a driving school car, or if it is bought for resale, or as a taxi. For leased cars, 50% of the VAT is generally reclaimable if there is private use, and the rest is blocked.

Vans are treated more generously. VAT on a van that is a commercial vehicle can usually be reclaimed in full, even if there is some private use, subject to the van not being treated as a car. Fuel needs a method. You can reclaim the VAT on business fuel, but if you have private use you must either reclaim only the business proportion or use a flat fuel scale charge.

Mixed business and private use

If a purchase has both business and private use, you can reclaim only the business share of the VAT. Typical examples are a mobile phone used partly personally, a home office used partly for family life and household utilities. Keep a reasonable method for working out the business proportion and use it consistently.

If your company makes both taxable and exempt supplies, a separate rule called partial exemption restricts how much input VAT you can reclaim, and you may need an apportionment calculation. This applies to some financial, educational and property businesses, and it can be complex, so take advice if your company has exempt income.

Costs from overseas suppliers and the reverse charge

When you buy services from outside the UK, the supplier often does not charge UK VAT. For most business-to-business services, you must account for the VAT yourself under the reverse charge, by recording both output and input VAT on your return. For a fully taxable business, the two cancel out, so there is no cash effect, but the entries are required.

For goods imported into the UK, import VAT is paid at the border and can be reclaimed if you hold the correct import documents. Using postponed VAT accounting lets you declare the import VAT on your return instead of paying it upfront, which helps cash flow.

Claiming VAT on costs before you registered

You can reclaim VAT on certain costs incurred before you registered, as long as they relate to your taxable business. For goods, such as stock or equipment you still hold, you can go back four years before registration. For services, you can go back six months. The goods must still be on hand, or have been used to make other goods you still hold.

Gather the invoices and write a schedule of what you are claiming, then include the total on your first VAT return. It is a one-off opportunity, and worth doing carefully, because start-up costs can be substantial.

Keeping records and common errors

Good records protect your claims. Keep every VAT invoice, file it by date, and note the business purpose where it is not obvious. Common errors include claiming VAT on invoices addressed to the director personally rather than the company, claiming from a supplier who is not VAT-registered, claiming the VAT on blocked items such as entertainment, and double counting the VAT on a flat rate scheme where input VAT is not claimable.

A quarterly review of your VAT return, comparing the input VAT claimed with your purchase records, catches most errors before they reach HMRC.

A worked example of a quarterly VAT claim

Imagine a design company that is VAT-registered and has the following costs in a quarter. It pays £1,200 plus £240 VAT for software and hosting, £800 plus £160 VAT for a new monitor, £300 plus £60 VAT for a client dinner, and £150 plus £30 VAT for train tickets, which carry no VAT in practice. The software and monitor VAT of £400 is reclaimable in full, because they are business costs with valid invoices. The client dinner VAT of £60 is blocked as entertainment, so it must be left out of the claim even though the invoice is valid.

If the company also charged £9,000 of VAT to customers, the VAT payable to HMRC for the quarter is £9,000 minus £400, which is £8,600. Spotting the blocked item matters, because claiming it would overstate the reclaim and might lead to an error assessment later.

Using bookkeeping software to avoid mistakes

Modern accounting software can apply the right VAT treatment automatically if you set up your categories properly. Mark accounts such as client entertainment as non-reclaimable so the software excludes the VAT, and mark standard purchases as 20% reclaimable. Attach the receipt to each transaction as you go, so the invoice is available if HMRC asks. Reconcile the bank account monthly, which catches missing invoices before the return is due. A well set up system means the VAT return is mostly a case of checking and submitting figures that are already correct.

Frequently asked questions

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