When it comes to completing VAT returns, you can’t reclaim any VAT for a purchase which isn’t for your business. However, for a purchase which is both for business and personal, you can reclaim some or all the VAT.
If a purchase is of consumable foods or services such as stock or broadband, you can reclaim the VAT corresponding to the proportion of business use.
If the goods are equipment where there could be varying business and private use, there are two ways to account for the VAT:
Method 1 – Reclaim some VAT
You should use this method if you have a reasonable idea of the proportion of business and private use, and only reclaim VAT in proportion to the expected business use.
Method 2 – Reclaim all the VAT
If you expect that there will be some business use, you can reclaim all the VAT on the purchase and then pay some only when you use the equipment for private use. HMRC has a formula for working out the VAT you must pay.
In April 2018, ABC Ltd bought a van for £20,000 plus VAT of £4,000 which was intended for business use only, therefore ABC Ltd reclaims all the VAT.
However, for the whole of VAT quarter ended 31 March 2019, one of the directors uses the van solely for private purposes. ABC Ltd must account for VAT on the cost of the van divided by lesser of the number of months the business expects to own and use the van, and 60 (£20,000 / 60 = £333.30).
The result is multiplied by the number of months in the VAT return period, then multiplied by the proportion of private use, in this case 100% (£333.30 x 3 x 100% = £1,000). The VAT payable is 20% which is £200 (£1,000 x 20%).
You cannot reclaim VAT if you don’t expect your purchase to be used in your business. However, if you expect even a small proportion of business, you can reclaim VAT and use any of the method mentioned above.