VAT on Business Expenses: What UK Small Businesses Can Reclaim

The basic rule: business purpose

You can reclaim VAT on goods and services that are used wholly or partly for business purposes. The expense must be for your VAT-registered business — not personal use, and not for a non-taxable business activity.

If an expense is partly personal, you can only reclaim the business proportion. HMRC expects you to make a reasonable apportionment and be consistent about it.

What you can reclaim VAT on

Travel and accommodation

You can reclaim VAT on business travel — trains, flights, hotel stays, taxi fares — provided the journey is for business purposes. Keep the VAT receipt, not just a card statement.

Note: there is no VAT on rail tickets or most domestic flights within the UK, so there is nothing to reclaim on these.

Fuel for business vehicles

If an employee uses a company vehicle, you can reclaim the VAT on fuel. If they use their own car (and you reimburse mileage), you can reclaim VAT using the fuel scale charge or by only reclaiming on the business fuel proportion — HMRC has specific rules here that are worth checking with your accountant.

Equipment and supplies

Computers, phones, office furniture, software subscriptions — all reclaimable provided they are for business use. If an employee also uses a laptop personally, you can only reclaim the business proportion.

Professional services

Accountant fees, legal fees, marketing, IT support — standard rate VAT, fully reclaimable when used for your business.

Subsistence (meals while travelling)

If an employee is away from their usual place of work on business, meals and refreshments are reclaimable. The key test: they must be away from their normal workplace, not just eating lunch near the office.

What you cannot reclaim VAT on

What counts as a valid VAT receipt

To reclaim VAT, you need a VAT invoice — not just a card statement or bank record. A valid VAT invoice must show:

• The supplier's name, address, and VAT registration number
• Date of supply
• Description of the goods or services
• The VAT rate applied and VAT amount
• The total amount payable including VAT

For purchases under £250 (including VAT), a simplified VAT invoiceis acceptable — this just needs the supplier's name, VAT number, date, description, and the VAT-inclusive total. Most till receipts and restaurant receipts qualify as simplified invoices if they include the supplier's VAT number.

HMRC accepts digital copies of receipts. You do not need to keep paper originals, but the digital copy must be a true reproduction — not a summary or manual entry.

Common mistakes UK businesses make

• Reclaiming on entertainment: Taking clients out for dinner is not reclaimable — this is one of the most common errors on VAT returns.
• Missing the VAT number: A receipt without the supplier's VAT number is not a valid VAT invoice. You cannot reclaim without it.
• Using card statements as evidence: A bank statement showing a payment to a restaurant is not a VAT invoice. You need the original receipt.
• Claiming 100% on mixed-use assets: If a company phone is also used personally, you cannot reclaim all the VAT — only the business proportion.
• Late claims: You can reclaim VAT on purchases going back up to 4 years (for goods) or 6 months (for services) when you first register for VAT. After that, the deadline is the VAT return for the period the expense occurred in.

How to record VAT on employee expenses correctly

When employees make purchases on behalf of the business, the VAT reclaim sits with the business — not the employee. To reclaim correctly:

1. The employee must capture the full VAT receipt (not just the card payment notification)
2. The receipt must show the supplier's VAT number
3. The expense must be coded to the correct VAT category in your accounting software
4. Your bookkeeper or accountant includes the VAT amount on the relevant VAT return

The biggest practical problem here is receipt capture. Employees often photograph the card machine receipt (which just shows the total) rather than the full VAT invoice. An expense app that prompts employees to capture the correct document — and flags missing VAT numbers — prevents this problem.