Every business that charges value-added tax (VAT) also pays it: to suppliers, accountants, and others. The system is designed so you pass VAT along without absorbing it yourself. There were roughly 2.73 million VAT-registered businesses in the UK as of 2025, and the total VAT collected reached £171 billion in the 2024 to 2025 fiscal year.

When you’re reclaiming VAT in the UK, the rules are clear, but the exceptions are important—and can be easy to miss.

Below, we explain how VAT recovery works: who can claim it, how to handle overseas purchases or the Flat Rate Scheme, and the mistakes that can cost businesses money. Here’s the information you need to make reclaiming VAT in the UK fully compliant.

What’s in this article?

• What does it mean to reclaim UK VAT?
  
• Who can claim VAT back and on what expenses?
  
• When can’t you reclaim VAT?
  
• How do you claim VAT back on your VAT return?
  
• Can you reclaim VAT on past or overseas purchases?
  
• How does VAT reclaim work when using Stripe?
  
• How does the Flat Rate Scheme affect VAT reclaims?
  
• What are common VAT reclaim mistakes?
  
• How Stripe Tax can help
  

What does it mean to reclaim UK VAT?

Reclaiming UK VAT means ensuring you recover eligible expenses.

Here’s how it works:

• When you charge VAT on your sales, that’s output VAT, so you owe the tax to His Majesty’s Revenue and Customs (HMRC).

• When you pay VAT on your business purchases, that’s input VAT, so you can usually reclaim it.

On your VAT return, you subtract input VAT from output VAT. If you collected more than you paid, you pay HMRC the difference. If you paid more than you collected, HMRC owes you a refund.

This system is designed so only the end customer bears the VAT cost. At each step before that, VAT is passed along. But to reclaim VAT, you need to know which expenses are eligible, track and document them correctly, and follow the rules on your VAT return.

Who can claim VAT back and on what expenses?

Only VAT-registered businesses can reclaim VAT. If you’re not registered, VAT on your purchases is a cost. The annual turnover threshold for businesses to register is £90,000, but many smaller businesses register voluntarily before reaching that amount.

Every expense must meet two conditions for you to be able to reclaim VAT:

1. The purchase must be wholly and exclusively for business use. A laptop for work qualifies. A weekend hotel stay doesn’t. If something has mixed use—for example, a mobile phone—you can reclaim only the business-use portion.

2. You need a valid VAT invoice. HMRC expects a proper invoice showing the supplier’s VAT number, the date, and the VAT charged. Pro forma invoices, quotes, or order confirmations don’t count.

Common expenses you can reclaim VAT on include:

• Office and tech costs: Hardware, software, furniture, internet, and utilities used for business.

• Travel for work: VAT on fuel, car hire, tolls, or hotel stays for business trips. Public transport such as trains and flights usually have no VAT, so there’s nothing to reclaim. For fuel charges, you can recover only the business-use portion. Businesses usually reclaim all VAT and pay a fuel scale charge or claim VAT only on documented business miles.

• Professional services: Accounting, legal, IT, and marketing fees that include VAT.

• Stock and production costs: Goods or materials you resell or use to make products.

• Employee expenses: VAT on staff travel or businesswide events.

When can’t you reclaim VAT?

Even VAT-registered businesses can’t claim VAT on everything. HMRC draws clear lines around what counts as a recoverable business cost and what doesn’t.

Expenses that don’t qualify include:

• Personal or mixed-use items: VAT is recoverable only on goods and services used entirely for business. If an expense is split between business and personal use, such as a shared mobile plan, you can reclaim only the business portion.

• Client entertainment: Meals, events, or gifts for clients and suppliers are excluded. HMRC treats this as a voluntary business cost. The one exception is entertainment provided for employees, such as an annual party open to all staff, which is reclaimable.

• Zero-rated or exempt goods and services: You can’t reclaim VAT that was never charged. Train and flight tickets, insurance premiums, postage, rent on residential property, and many financial services fall into this category.

• Purchases from unregistered suppliers: If a vendor doesn’t charge VAT, there’s nothing to recover. Always check that your suppliers include a valid VAT number on invoices.

• Purchases with missing or invalid invoices: A claim without proper documentation won’t hold up in an HMRC review. Every reclaim must be backed by a VAT invoice with all required details.

• Purchases related to VAT-exempt sales: If your business makes taxable and VAT-exempt sales, you can reclaim only the VAT tied to your taxable activities. The rest is off-limits.

How do you claim VAT back on your VAT return?

Reclaiming VAT doesn’t require a separate form. It happens through your regular VAT return, which tallies up what you owe HMRC and what HMRC owes you.

Here’s what the process entails:

1. Track your VAT totals: During the VAT period, record VAT charged on sales (output VAT) and VAT paid on business purchases (input VAT).

2. Complete the VAT return: Box 1 is VAT you charged customers, Box 4 is VAT you’re reclaiming on purchases, and Box 5 is the difference (your net VAT position). A positive result means you pay HMRC. A negative one means you’re due a refund.

3. Submit and settle: Returns are filed digitally. If you’re owed a refund, HMRC typically sends it by bank transfer within a few weeks. Keep your business bank details current.

Tips for accurate reclaims

• Match your Box 4 total to valid VAT invoices on file.

• File on time. Late returns delay refunds and can trigger penalties.

• Keep digital records for every claim in case HMRC asks for evidence.

Can you reclaim VAT on past or overseas purchases?

VAT recovery doesn’t always start the day you register or stop at the UK border. With the right paperwork, you can reclaim VAT on earlier expenses and, in some cases, on foreign ones.

Preregistration VAT

When you’re going through the VAT registration process, HMRC lets you claim back VAT on earlier business costs if they meet specific timing rules. These include:

• Goods: You can go back up to four years as long as those items are still in use or in stock on your registration date.

• Services: You can go back six months—but only for services directly related to your business’s taxable activity.

You’ll need original VAT invoices for everything you claim. These preregistration reclaims are usually added to your first VAT return after registration.

Overseas VAT

If you’ve paid VAT abroad (e.g., hotel bills from a conference in Germany), you can’t claim it on your UK VAT return. Instead, UK businesses must apply to each country separately under the 13th VAT Directive refund process. EU member states handle these claims individually, and most have annual submission deadlines.

Imports and VAT on services from abroad

• Imports: You can reclaim VAT through HMRC using postponed VAT accounting or the C79 certificate.

• Services from abroad: Instead of the foreign supplier charging you VAT, you account for the VAT. Because you declare and reclaim the same amount, the financial impact is neutral. The UK requires you to self-charge VAT and reclaim it simultaneously, which keeps the VAT system consistent while avoiding foreign suppliers needing to register for UK VAT.

How does VAT reclaim work when using Stripe?

For businesses based in the UK, Stripe’s fees are billed from Stripe’s establishment in Ireland, which means the reverse charge applies (it’s considered a “service from abroad”). Instead of paying VAT to Stripe, you account for it by declaring and reclaiming it on the same VAT return.

Here’s how it works:

• Stripe invoices list fees with £0 VAT and mention that VAT is due under the reverse charge.

• You record that VAT as output and input VAT. They cancel each other out if you have full VAT recovery.

• The net effect is no VAT cost to your business but full compliance with HMRC’s rules.

To ensure this works well, add your VAT number to your Stripe account so Stripe invoices you correctly. Keep all monthly fee invoices in your records; they’re your evidence for VAT accounting. Integrated systems can automate the reverse charge entries.

How does the Flat Rate Scheme affect VAT reclaims?

The Flat Rate Scheme (FRS) makes VAT easier for small businesses by letting you pay HMRC a fixed percentage of your total sales instead of tracking every input and output. That percentage—set by industry—is lower than the standard 20%, which reflects that you’re giving up most VAT reclaims in exchange for less accounting work.

Under FRS, you don’t reclaim VAT on everyday purchases because the flat rate factors that in. The one exception is certain capital assets over £2,000 (including VAT), such as machinery or equipment you’ll use long term. Those large purchases remain eligible for full VAT recovery.

The scheme is available for businesses with annual turnover up to £150,000 (excluding VAT). It’s often useful for service-based businesses with low expenses, though it can be less advantageous if you buy or import a lot. Once you leave FRS, you revert to standard VAT rules and can reclaim input VAT normally.

What are common VAT reclaim mistakes?

These mistakes can trip up even experienced teams:

Claiming VAT that was never charged

Train and flight tickets, insurance, postal services, and many rideshares don’t include VAT. Always confirm a supplier charged VAT before recording it as input tax.

Client entertainment

Meals, events, or hospitality for clients are outside the rules for recovery. Only staffwide entertainment, such as a party open to all employees, qualifies.

Missing or wrong documentation

Pro forma invoices, order confirmations, or credit card slips don’t count. Keep proper VAT invoices, and ensure supplier VAT numbers are valid.

Unpaid supplier invoices

If an invoice remains unpaid after six months, HMRC requires you to repay the VAT you claimed until payment is made.

Import and reverse charge errors

Use official C79 certificates or postponed VAT statements for imports, and apply the reverse charge correctly for overseas services by declaring and reclaiming VAT in the same return.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, VAT, and goods and services tax (GST) on both physical and digital goods and services—in all US states and in more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.