Can I Claim VAT Back as a Sole Trader?

Yes, you can make a claim for VAT on all the goods and services you purchased for your business as soon as your business is VAT registered subject to the normal VAT recovery rules.

You might be able to reclaim up to four years back in certain circumstances. 

In this article, we’ll guide you through what you need to know about VAT reclaims, who is eligible to reclaim and more information on how to register for VAT as a sole trader.

What can I reclaim as a sole trader?

If you purchased goods or services for business use, you should be able to reclaim VAT paid for them.

If the purchase or service was used for part business and part personal use, you can claim the proportion of the VAT relating to onward taxable supplies made by the business. A good example of this would be your mobile phone.

If you use the same mobile contract for personal use and business use, you can reclaim the business usage of the VAT on the contract or/and the purchase price of the mobile.

You will need to keep records that will support every claim. You also need to show the workings out when deciding on the business proportion and personal proportion.

Additionally, you must have valid VAT invoices to support your claim.

Since April 1, 2019, you must have digital VAT records and use the online software to submit your VAT returns.

Should I charge VAT as a sole trader?

You can only reclaim VAT to the extent that it relates to taxable supplies on which the business accounts for output tax at the appropriate rate.

You only need to register for VAT as a sole trader if you meet the thresholds set out by HMRC. You must register if:

• You expect to have a taxable income of over £85,000 in the next 30 days alone
• Your previous annual turnover exceeds £85,000 over a rolling 12-month period

What can’t I reclaim as a sole trader? 

There are certain things that you can’t reclaim VAT for.

These include:

• Products and services that are for personal use only
• Entertainment costs for your business
• Business assets transferred as a going concern
• The services and goods you use for your business to create VAT-exempt supplies
• Goods you purchased sold under a VAT second-hand margin schemes

Pre-registration Input Tax

Input tax can be reclaimed on goods and services purchased prior to a business registering for VAT. However, as with other input tax claims these goods must relate to onward taxable supplies made by the business.

There are time limits associated with recovery of pre-registration input tax, these are as follows:

• VAT incurred on goods purchased by the business in the 4 years preceding the businesses effective date of registration can be recovered on condition that the goods are still held by the business when the claim is made, i.e., they have not been sold or ‘used-up’.
• VAT on services purchased in the 6 months prior to the businesses effective date of registration can be treated as input tax, subject to the normal VAT recovery rules being met.

How do you get a VAT refund?

As a sole trader you’ll need to submit a VAT return to claim any refund back from HMRC.

This is a quarterly report that details all the output VAT charged by the business in the reporting period – this is paid across to HMRC on submission of the return however input tax incurred is offset against this amount.

As such, if VAT on purchases exceeds VAT on sales, or if you make solely zero-rated sales, HMRC will refund the difference.

How long does it take to get a VAT refund when reclaiming VAT?

Expect the refund to take 10 working days after HMRC received your VAT return. Delays do happen, so contact HMRC if your refund hasn’t arrived within 30 working days of submitting your VAT return.

Things to remember with VAT reclaims

Asking the question, “can I claim VAT back as a sole trader” is worthwhile, as it can result in a refund that you are owed.

You can reclaim VAT for the business you are VAT registered for. You need to submit your VAT return and have the evidence that supports any claims you make. Keep records and VAT invoices so you’re able to reclaim VAT you’re owed. 

Learn more about VAT reclaims as a sole trader along with other VAT return questions you may have by contacting a professional.