How is VAT reclaimed in the UK

How is VAT reclaimed in the UK

How is VAT reclaimed in the UK? Many goods and services purchased in the UK will be subject to VAT. VAT incurred on goods or services is input tax and this can be reclaimed by UK VAT registered businesses when this relates to the provision of onward taxable supplies. Input tax generally cannot be reclaimed by consumers or by businesses when the relevant items do not relate to its taxable activity.

In the following guide, we will outline the different rates of VAT and how you can go about reclaiming this.

What are the different rates of VAT?

VAT is charged at three rates; the standard rate of 20%, the reduced rate (5%) and the zero-rate (0%). Although zero-rated supplies are taxable supplies for VAT purposes, VAT is not charged at a positive rate and as such there is no VAT element to recover in relation to zero-rated goods and services. Items such as books and children’s clothes are zero-rated for VAT purposes.

The reduced rate of VAT applies to a limited selection of items, such as energy-saving materials for homes.Supplies that are not defined as reduced rated, standard rate, or exempt from VAT, are standard rated by default.

How is input tax recovered?

UK VAT registered businesses are required to submit quarterly VAT returns to HMRC. On these returns, businesses are required to declare the amount of output tax charged on taxable supplies in the period covered by the return – input tax incurred is offset against this amount with the difference payable to HMRC. Should input tax incurred in a period exceed output tax declared, a repayment is due from HMRC. 

On average, it takes about 30 days for HMRC to make any necessary reported repayments, and these can be done by direct bank transfer or cheque. 

Can I reclaim VAT incurred overseas?

The deadline for claiming VAT incurred in the EU on or before 31 December 2020 was 31 March 2021. From 1 April 2021 UK businesses no longer have access to the EU electronic portal. 

EU VAT incurred after 1st January 2021 can still be claimed by UK businesses however, they will have to use the existing processes for non-EU businesses which vary across the EU. The EU Commission's website should be consulted for the specific process for the relevant country. A certificate of status may need to be obtained.