All About Tax and VAT Refunds

VAT Refunds

In order to reclaim VAT on purchases, your business must be registered for VAT. Registration is mandatory for businesses that have an annual turnover over a certain amount. At present, that amount is £67,000 but it increases each year. You do not have to turn over this amount in order to be eligible for VAT: under this threshold you can voluntarily register for VAT.

If a business is VAT registered, it can claim back the VAT it paid on all relevant business purchases. This is called ‘input tax’. There are different types of VAT registration, known as standard, reduced or zero rate VAT. VAT can be claimed regardless of the type of registration. You cannot reclaim VAT on goods or services that you bought wholly or partially for personal use.

If You Are Not VAT Registered

However, if your business is not registered for VAT from the beginning, but subsequently becomes VAT registered (for whatever reason) you can claim the VAT for the goods and services you purchased prior to registration, as long as you keep all the receipts. It is also a condition of being VAT registered that you keep all documentation – VAT receipts for both invoices and purchases, for a minimum period of six years.

In order to be eligible for a VAT refund, your business must have paid more VAT on expenses than it has charged on sales. If this is the case HMRC will refund the money you are owed, once it has completed a number of checks for credibility and if necessary, an investigation.

If further checks are required, the claim may be taken up by a local VAT audit centre. Once any issues have been resolved, the money will be refunded directly to your bank account. If payment is not authorised within 30 days, and your claim is legitimate, you may also be entitled to compensation (which is called ‘repayment supplement’ of 5% of the claim or £50, whichever is the greater.)

Tax Rebates

Did you know that one in three people might be entitled to a tax rebate? It’s your job to claim it, not for the Inland Revenue to identify whether they owe you any money.

So under what circumstances might you be entitled to some money back? For example, if you started a job and were put on ‘emergency tax’ for a period; if your circumstances change – e.g. you marry or retire, if you are not a tax payer but your bank has deducted tax from your interest, or if HMRC has made an error, for example by allocating you with the wrong tax code.

It is possible to claim a rebate yourself if you know how to go about it. However, it can be time consuming and involves writing letters to, and conversations with, the Inland Revenue to resolve the issue.

There are numerous rebate companies in the UK that offer to take up your case on your behalf, and may check that you are registered under the correct tax code for free – so you know whether you might have a claim or not.