A business expense is not automatically a recoverable VAT claim. The business needs to establish its VAT position, the nature and use of the purchase, appropriate evidence and any restriction or scheme rule. An amount labelled “VAT” in software is not enough on its own.
In this article
- Identify the business purchase
- Find the supporting VAT invoice
- Check restrictions and mixed use
- Record the supported VAT treatment
Use a consistent review process when documents are captured, rather than discovering questions just before the return deadline. Keep uncertain purchases visible and ask for advice on the actual facts instead of forcing them into a familiar code.
Start with the purchase and the evidence
HMRC’s reclaim guidance explains the usual VAT-registered business position, supporting records and valid VAT invoice requirement. A bank statement establishes a payment, but may not establish the supplier’s VAT charge or what was bought.
Collect the invoice, business purpose and payment evidence where relevant. Check that the document relates to the purchasing business and has not already been entered. Supplier statements, order acknowledgements and card slips may require additional evidence rather than being treated automatically as sufficient invoices.
If the invoice is missing, ask for a duplicate. Keep a gap register and refer unresolved evidence to the adviser. Do not invent a VAT amount by assuming every purchase includes VAT at a standard rate.
Ask how the purchase is used
Identify wholly business, wholly private and mixed use. Retain the basis for a business allocation, such as usage records. HMRC’s guidance also highlights partial exemption where a business makes both taxable and exempt supplies; business use alone does not settle that recovery calculation.
Illustrative example: a business receives a phone invoice but the phone is also used privately. The bookkeeper obtains usage evidence and flags the allocation for review rather than claiming the full VAT simply because the company paid the bill.
No standard percentage is appropriate for every phone or owner. The example is illustrative; the actual evidence and recovery rules determine the treatment. Keep the usage records and the agreed allocation with the invoice so the basis remains clear when another person reviews the return or the business changes its accounting system.
Recognise purchases needing a separate check
| Purchase or situation | Review question |
|---|---|
| Customer hospitality | Does the business-entertainment restriction apply? |
| Staff travel or subsistence | Who incurred the cost, for what trip and with what evidence? |
| Vehicle, hire or fuel | Which specific vehicle and usage rules apply? |
| Mixed taxable and exempt activity | Is a partial-exemption assessment required? |
| Overseas supplier | What supply, import or reverse-charge rules apply? |
| Pre-registration purchase | Are timing, ownership and business-purpose conditions met? |
HMRC’s reclaim page identifies restrictions including private expenditure and business entertainment, as well as specific vehicle and travel rules. Do not apply the ordinary office-purchase process to these categories without reviewing them.
For hospitality, record attendees and purpose so the adviser can distinguish the facts. For vehicles, retain purchase or hire agreements and usage evidence. A business logo or occasional work trip does not alone establish full recovery.
Confirm the scheme and timing
Under cash accounting, purchase recovery is generally connected to supplier payment, subject to the scheme’s exclusions. Track payment allocations so a partially paid bill is not mistakenly treated as fully paid.
Under the Flat Rate Scheme, most purchase VAT is not separately recovered, with limited qualifying capital-asset exceptions. Do not use ordinary invoice recovery simply because the invoice itself looks valid.
For invoice-based recovery, an unpaid supplier balance can still require later review: HMRC’s reclaim guidance points to clawback rules. Ask the adviser about old unpaid invoices and relevant adjustments rather than assuming the original claim remains correct indefinitely.
Keep credit notes and corrections connected
Match supplier credits to the original purchase and investigate refunds. A bank receipt from a supplier may represent a credit, deposit return or other movement. Its description alone does not explain the VAT adjustment.
Avoid recording both the credit note and refund as separate reductions of the same purchase. Retain the document trail and reconcile the supplier balance.
HMRC’s recordkeeping guidance covers the evidence and digital records supporting returns. Keep review decisions traceable so a later person can understand why a claim was made, restricted or excluded.
Make the routine manageable
At capture, require a document and business-purpose explanation where needed. During review, check duplicates, uncertain VAT codes and restricted categories. Before submission, resolve material queries and retain the evidence and reasons supporting the recovery decision.
Discuss EPOS VAT support with real invoices and the business’s scheme details. Bookkeeping services can support capture and allocation. Use pricing information for scope and fees; no general expense calculator can establish entitlement for every purchase.