Reclaiming VAT, when and how does it work?

TheBigCheese · 23 Aug 2008 at 17:34

Hi guys

I've been looking and looking on the HMRC website and I can't find the answers to a couple of really basic questions on VAT.

My business will be nearing the VAT limit soon so we will be registering within the next three months or so I would think...

I know that you can reclaim VAT on all business purchases (plant and equiptment) up to three years before registering for VAT as long as you still have them (i.e. not sold on or scrapped). You can also claim VAT back on services (such as bills) up to six months before registering for VAT.

When I fill in a VAT return knowing that I have paid (for example) £5000 in VAT on equipment etc. in the last three years, what happens?

Would HMRC send me a cheque for £5000 immediately?

Would it wait until the next VAT quarter and it be knocked off what I would be paying in new VAT charges to our customers?

Would it be refunded to us somehow at the start of the next tax year in April 2009?

Many thanks in advance

Skidder · 23 Aug 2008 at 17:40

TheBigCheese said:
Hi guys

I've been looking and looking on the HMRC website and I can't find the answers to a couple of really basic questions on VAT.

My business will be nearing the VAT limit soon so we will be registering within the next three months or so I would think...

I know that you can reclaim VAT on all business purchases (plant and equiptment) up to three years before registering for VAT as long as you still have them (i.e. not sold on or scrapped). You can also claim VAT back on services (such as bills) up to six months before registering for VAT.

When I fill in a VAT return knowing that I have paid (for example) £5000 in VAT on equipment etc. in the last three years, what happens?

Would HMRC send me a cheque for £5000 immediately?

Would it wait until the next VAT quarter and it be knocked off what I would be paying in new VAT charges to our customers?

Would it be refunded to us somehow at the start of the next tax year in April 2009?

Many thanks in advance

I file my VAT returns on line through the HMRC website and have registered my business account with them. If they owe me something I normally get it in my account within a week or so of the returns filing.

Most of my services are 0 rated so i often get something back, which is nice.

Biohazard · 23 Aug 2008 at 17:43

TheBigCheese said:
Would it wait until the next VAT quarter and it be knocked off what I would be paying in new VAT charges to our customers?

That.

Any questions phone National Advice on 0845 010 9000 if the website is useless.

I have limited knowledge of VAT accounting, only from a Imp/Exp side. However it is normally offset on future returns.

Salsa · 23 Aug 2008 at 17:49

See http://www.hmrc.gov.uk/vat/reclaim-for-pre-reg.htm

Basically, just enter it onto your first VAT return.

Edit: And to actually answer your question, I can't find when you get the VAT owed back, but it will probably be soon after you file the form.

philjohn · 23 Aug 2008 at 18:26

Also, if you are only just going over VAT threshold, have a look if the flat rate VAT scheme would save you more money - HMRC have all the details about applying. You still charge clients 17.5%, but only pay a percentage of your total turnover.

You can also claim VAT back on any capital expenditure over £2000 IIRC.

Only good until you're turning over in the mid 100,000's a year though.

edit: here's the info http://www.hmrc.gov.uk/vat/account-flat.htm and it's good up to turnover of £150,000 PA.

WJA96 · 23 Aug 2008 at 18:38

This might sound very obvious, but you can only claim back VAT from VAT you have brought in ie. if you sold £100,000 worth of stuff and you charge £17,500 VAT on it, then as far as I'm aware, you can only claim back upto £17,500 in VAT.

The fixed rate scheme almost seems too good to be true when you first hear about it, but for a consultancy business just starting out it's effectively free money.

mark.souness · 24 Aug 2008 at 00:33

WJA96 said:
This might sound very obvious, but you can only claim back VAT from VAT you have brought in ie. if you sold £100,000 worth of stuff and you charge £17,500 VAT on it, then as far as I'm aware, you can only claim back upto £17,500 in VAT.

The fixed rate scheme almost seems too good to be true when you first hear about it, but for a consultancy business just starting out it's effectively free money.

You can get VAT refunds if your VATable purchases are more than your sales !

Beansprout · 24 Aug 2008 at 00:35

Ask your accountant to do all this for you - we send off our invoices and so on every quarter, accountants send back the numbers we need to fill in on the return, which we then fill in and send off with a cheque. Easy

csmager · 24 Aug 2008 at 01:05

WJA96 said:
This might sound very obvious, but you can only claim back VAT from VAT you have brought in ie. if you sold £100,000 worth of stuff and you charge £17,500 VAT on it, then as far as I'm aware, you can only claim back upto £17,500 in VAT.

As has been said, this is incorrect. You can get a refund from HMRC if your input VAT is more than your output VAT. This might happen if you're just starting up, or if you sell a lot of zero rated supplies.

Beansprout said:
Ask your accountant to do all this for you - we send off our invoices and so on every quarter, accountants send back the numbers we need to fill in on the return, which we then fill in and send off with a cheque. Easy

Might be a bit excessive as it's just adding up VAT figures on invoices and working out who owes who what at the end. If you're entering all this into accounting software, the accounting software can most likely produce the return for you automatically anyway.

Beansprout · 24 Aug 2008 at 01:07

csmager said:
As has been said, this is incorrect. You can get a refund from HMRC if your input VAT is more than your output VAT. This might happen if you're just starting up, or if you sell a lot of zero rated supplies.

Might be a bit excessive as it's just adding up VAT figures on invoices and working out who owes who what at the end. If you're entering all this into accounting software, the accounting software can most likely produce the return for you automatically anyway.

True....I lied a little bit, we automate it now and just send things to our accountant to check them over.

Skidder · 24 Aug 2008 at 09:17

Yep, I have reclaimed at least 5 times more VAT than I have charged. It's the nature of my business that makes it work consistently like that.

Second, although I find my accountant very valuable for annual returns, other than a quick discussion when I first registered for VAT, there is no need for them to be involved. All the accounting packages spit out VAT returns with numbered boxes just as they are numbered on the return and you just fill in the appropriate box on the form/webform. Unless your VAT situation is very complicated it should be that after a couple of quarters it just takes you a few moments to deal with (assuming your accounts software is up to date with all your income and expenditure.)

atpbx · 24 Aug 2008 at 09:49

TheBigCheese said:
Hi guys

I've been looking and looking on the HMRC website and I can't find the answers to a couple of really basic questions on VAT.

My business will be nearing the VAT limit soon so we will be registering within the next three months or so I would think...

I know that you can reclaim VAT on all business purchases (plant and equiptment) up to three years before registering for VAT as long as you still have them (i.e. not sold on or scrapped). You can also claim VAT back on services (such as bills) up to six months before registering for VAT.

When I fill in a VAT return knowing that I have paid (for example) £5000 in VAT on equipment etc. in the last three years, what happens?

Would HMRC send me a cheque for £5000 immediately?

Would it wait until the next VAT quarter and it be knocked off what I would be paying in new VAT charges to our customers?

Would it be refunded to us somehow at the start of the next tax year in April 2009?

Many thanks in advance

In simple terms (very simple) once you are vat registered and start charging vat, you deduct what you are claiming back from the revenue from the VAT you are charging and send them the balance:

You buy goods in at £8,000 plus 17.5%= £9400 (£1400 vat)
You invoice £10,000 plus 17.5% VAT = £11750 (£1750 VAT)

You claim back the £1400 from the £1750 and send the revenue £350.

And its done every quarter.