What can I claim on my first VAT return?

There are two main reasons why you or your business will register for VAT. Firstly, your taxable turnover may have reached £90,000, meaning the law says you have to register. Secondly, you may want to register voluntarily. This can give your business extra credibility. You may also be able to claim back more VAT than you charge, thus making a profit. If you’re wondering about the latter, you’re probably asking yourself, “What can I claim on my first VAT return?”

To help answer this, we’ll look closely at what you can claim on your first VAT return as well as answering some of the other questions you may have about the VAT system.

Will you owe VAT or be in line for a refund?

Before you claim on your first VAT return, you need to understand the basic principles of VAT.

Put simply, you need to charge VAT on certain goods and services. Most are charged at a VAT rate of 20%. Some, like children’s car seats, are charged at a reduced rate of 5%. Finally, some things are zero rated (although you still need to include them in your VAT accounting). These include most food and children’s clothes. You can find out more about VAT rates here and here.

Normally, you will account for VAT using your cloud accounting software. You then submit a VAT return electronically (normally every quarter). This includes:

• The VAT you’ve charged on sales (output tax)
• The VAT you’ve paid on business-related purchases (input tax)

The difference between these two figures determines whether you pay money to HMRC or can get a refund.

What’s worth noting is that, when you claim on your first VAT return, you’re allowed to claim input tax not only from the date of registration but, in some cases, from before that date. If you have made significant purchases within certain timeframes, you could well end up claiming a sizable refund.

Reclaiming pre-registration VAT

When you submit your first VAT return, you can claim back VAT paid on goods bought up to four years before the registration date. However, there are strict rules.

• You must still have the goods, or they must have been used to make other goods that you still have
• You’ll need a valid VAT invoice for each purchase
• The goods must relate to your ‘business purpose’ – that is, they must relate to the VAT-chargeable goods and / or services you supply.

You can also use your first VAT return to claim back the VAT you paid on services up to six months before registration. Again, there are rules that apply.

• The services must have been for business purposes
• The benefit of the service needs to be ongoing at the time you register for VAT. A good example would be new company branding that you paid for within six months before registering.

Note that you can’t claim for services that are ‘used up’ at the time of registration. Things like one-off consultations would come under this heading.

Examples of items you can reclaim VAT on

This list isn’t exhaustive, but it gives you a broad idea of the types of goods and services you can claim back VAT on:

• Stock and raw materials
• Equipment and tools
• Office supplies
• Phone and utility bills
• Professional fees (such as accountancy and legal services)
• Rent and property services

If you’re unsure about which items you can reclaim VAT on and you are a THP client, we can help you.

Remember, if an item is for both business and personal use, you can only claim back the business portion of the VAT. This can get complicated, so it’s best to talk to your accountant to avoid overclaiming and being hit by a demand for repayment.

Flat-rate VAT – a word of warning

So far, we’ve discussed the normal method of charging and claiming VAT. However, there are things called VAT flat rate schemes. These work by charging you a lower than normal percentage of VAT at a flat rate of your turnover. This can be worthwhile – and it certainly simplifies your accounting – but it does mean you can’t reclaim VAT on most purchases. This could work against you if you want to claim many recent or expensive purchases on your first VAT return.

How an accountant can help with your first VAT return

We certainly recommend talking to an accountant like THP before you do your first VAT return. We’ll be able to help you avoid common mistakes and inaccurate record keeping.

Additionally, our VAT returns service will make sure:

• You maximise repayment opportunities on your first VAT return
• Your VAT invoices meet HMRC requirements
• We identify any other ways to save you money
• Your VAT return will be filed accurately and on time

So, if you’d like help preparing your first VAT return or reviewing your eligibility for VAT claims, our team is here to help. Get in touch today for a free consultation.