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Contracting Blog

Reclaiming VAT as a Limited Company Contractor

17/06/2014

If you are a limited company contractor then you are only required to register for VAT in the UK if your company is expected to have a turnover exceeding £79,000 annually, although you may do this voluntarily even if your company is not expected to make this much.  The reason to do this is because the majority of VAT you incur on business expenses is recoverable.  This includes for instance training costs and software.  VAT can only be claimed however if you have a VAT invoice showing all the correct details.

If you have mixed expenses i.e. it is used for business and personal use such as a telephone then you must use a reasonable apportion method for VAT recovery.

Reclaiming VAT on travel can become somewhat complex.  With regards to trains and flights there is no VAT incurred.  Car related expenses are not so straightforward.  There are several ways to do this, either pay yourself a mileage rate which can be somewhat complex , have a fixed fuel scale which is a much simpler method or  you can keep a detailed mileage log that would show all business and personal use and then merely reclaim VAT for the business use. 

You cannot recover VAT on the purchase of a car for business.  However if you are leasing a car all the VAT can be recovered providing it is not hired for more than five days, in which case a portion of it can be recovered.

It is likely that your contract may take you overseas.  You cannot reclaim overseas VAT on your UK VAT return, but you may be able to reclaim a portion of the VAT on your overseas business expenses via a special HRMC Portal.  Most countries allow VAT recovery on costs like care hire and exhibition fees, but some do not allow on certain items such as hotel fees.  If you incur business expenses abroad you should always obtain a VAT receipt and check whether the country you are visiting allows VAT to be reclaimed on that particular expense, but be aware that VAT can only be reclaimed on a particular expense  if its allowable under the VAT rules of the country you are visiting.  Some costs may be VAT free when charged to an overseas VAT registered business for example exhibitions so it is worth providing you UK VAT registration number and accounting for this on your UK VAT return instead.

You can file a claim going back four years on your next VAT return depending on the amounts and that you have evidence to support it so it is worth keeping paperwork relating to VAT charged business expenses.




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