VAT for Small Business / Lesson 7 of 8
Reclaiming input VAT
Business lunch, company car, staff party. Two of those are blocked.
The short answer
- ✓ You need a valid VAT invoice to reclaim, not just proof of payment
- ✓ Client entertaining and cars with private use are blocked
- ✓ Mixed-use purchases are apportioned by business use
- ✓ Exempt supplies block reclaim; zero-rated supplies do not
The general rule
You can reclaim VAT on goods and services bought for your business, provided you hold a valid VAT invoice and the purchase relates to taxable supplies you make.
What is blocked
| Purchase | Reclaimable? |
|---|---|
| Stock, materials, tools | Yes |
| Professional fees | Yes |
| Staff travel and subsistence | Yes |
| Staff party within the annual limit | Yes |
| Business entertaining of clients | No, specifically blocked |
| A car available for any private use | No, in almost all cases |
| A commercial vehicle used only for business | Yes |
| Anything for personal use | No |
| Purchases relating to exempt supplies | No |
The car block is nearly absolute
VAT on buying a car is blocked if there is any private use, including commuting. In practice almost no ordinary business reclaims it. Vans and commercial vehicles are treated differently and are usually reclaimable if used only for business.
Leasing is more generous: typically half the VAT on a car lease is reclaimable, and fuel and servicing VAT can be recovered subject to the private use rules.
Mixed use
Laptop, VAT paid £200
Business use 70%
------
Reclaimable £140
Note the business share, so you can explain it later.The bit HMRC does not spell out
Making an exempt supply changes everything. If part of your business is exempt, such as certain financial, insurance, health or education services, you cannot reclaim VAT on purchases relating to that part, and you may need to apportion overheads between taxable and exempt activity.
Businesses that add an exempt income stream rarely realise their input VAT position has changed until a return is questioned. Exempt is not the same as zero-rated: zero-rated supplies allow full reclaim, exempt ones do not.
Common mistakes
- Reclaiming on client entertaining. Specifically blocked.
- Reclaiming on a car with private use. Almost always blocked.
- Confusing exempt with zero-rated. Only zero-rated allows reclaim.
- Reclaiming without a valid VAT invoice. A bank statement is not enough.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Amount
VAT is calculated instantly as you type. Standard and reduced rates come from current UK VAT settings.
Quick amounts
at VAT
- Net (excluding VAT)
- VAT ()
- Gross (including VAT)
VAT makes up of the gross price. Divide gross by to get the net figure.
Estimate only. Check current VAT rules at gov.uk for your goods or services.
What this means for you
Do this next, in order
Estimates only - not financial or tax advice. Confirm figures on GOV.UK or with an adviser.
Enter your sales and purchases for a VAT period to estimate what you owe HMRC (or reclaim). Enter figures excluding VAT.
VAT on sales (output VAT):
VAT on purchases (input VAT):
- Output VAT (charged on sales)
- Input VAT (reclaimed on purchases)
- −
Standard accounting. Uses the selected VAT rate (). The Flat Rate Scheme below can give a different figure.
On the Flat Rate Scheme you pay a fixed percentage of your VAT-inclusive (gross) turnover and generally cannot reclaim input VAT. Enter your trade's flat rate percentage to compare.
Find your sector's rate on gov.uk (e.g. 12% for many trades; 16.5% limited-cost).
Standard scheme
Output VAT − input VAT
Flat Rate Scheme
% of gross sales
Flat Rate Scheme could save you this period. Standard scheme is cheaper by this period.
Comparison only - eligibility, the limited-cost trader rules and reclaiming VAT on capital assets over £2,000 can change the outcome.
Net vs VAT across amounts
How the net amount and gross (VAT-inclusive) price grow at VAT.
Compare saved scenarios
| Scenario | Net | VAT | Gross | |
|---|---|---|---|---|
Key takeaways
- ✓ You need a valid VAT invoice to reclaim, not just proof of payment
- ✓ Client entertaining and cars with private use are blocked
- ✓ Mixed-use purchases are apportioned by business use
- ✓ Exempt supplies block reclaim; zero-rated supplies do not
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. Can you reclaim VAT on taking a client to lunch?
2. What is the difference between exempt and zero-rated for reclaim purposes?
3. You have a bank statement showing a purchase but no VAT invoice. Can you reclaim?
Sources
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