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How to claim back VAT if you are self employed

How to claim back VAT if you are self employed
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    Being self-employed is one of the best things you can do; it gives you a lot of freedom and flexibility with your work. Yet it also means you need to know how to sort out your own taxes and be aware of the financial options that come with owning your own business.

    Once you hit a certain minimum turnover as a self-employed person with your earnings that is taxable, you will have to charge VAT – Value-Added Tax. This is something that all businesses have to include, but is also something that you can claim back when you are VAT registered.

    The accounting side of being self-employed can feel like a bit of a minefield at the beginning, but once you get into the swing of things, it soon becomes a lot easier.

    Here at WIS Accountancy, our VAT accounting specialists take a look at what exactly VAT is and what you need to do.

    What does VAT mean?

    VAT (value added tax) is a consumption tax that is added to services and goods that are sold and bought in the EU. It was first implemented when the European Community was created in order to create an efficient, single market that ensured tax neutrality.

    This was to stop countries from charging less for their own exports. VAT Is a general tax that applies to all commercial activities by a business but is only applicable once a certain annual turnover is reached.

    It is charged as a percentage of the price and is collected fractionally to ensure no matter how many transactions are involved it is neutral. As of 2022, the current VAT threshold is £85,000. This means until you earn this much money you don’t need to pay VAT on items as a business.

    How do I pay VAT?

    As a self employed person you are essentially your own business owner and as such need to have an account with HMRC. Once you hit the threshold specified above (£85,000 per year) you need to register for VAT.

    This must be done within thirty days of the end of the month that you reached that amount of earnings. This is called a backward look. If you can look at your upcoming work and know that you will hit the threshold in the future, you should also register – this is called the forward look.

    Even if you haven’t reached the limit you can register voluntarily. This can help your business to look more credible and also mean you can claim back VAT from suppliers.

    On the other hand you need to remember that you will have to push up your prices in order to charge the additional 20% VAT for your customers. This could cause some upset to those that are happy with the prices you already charge, and can lead to more paperwork needing to be filed each year.

    It’s a good idea to think about the pros and cons and if registering early is something that will benefit you in the long run. If not, it’s best to wait until you reach the threshold of earnings.

    What can you claim VAT back for?

    There are many things that you can claim VAT back for as a self-employed individual. It is important to keep in mind that everything you claim VAT back for must be for business purposes. You can’t claim back VAT on a new phone that is for personal use, for example.

    You also can’t claim back for materials or services that you use to create things that are exempt from VAT such as insurance services. You also can’t claim VAT on business entertainment such as taking out people that aren’t guests or if you’ve purchased second-hand goods.

    Other than that, you can claim VAT back on a number of business expenses You can also claim back previous business VAT costs on your first VAT return. This could be any laptops or electrical equipment purchased in the last four years for example (as long as they are still used) and any services that you have bought for your company in the last six months that you used.

    Business expenses that you can claim back include travel costs whereby the journey was solely for business, accommodation if it was used for business – such as heading away for a conference -and any food or drink that was consumed during the trip.

    You can’t claim back VAT on public transport such as buses, trains or flights as these are all zero-rated for VAT anyway. You can however reclaim VAT for any fuel that you use.

    In order to claim back your VAT you need to complete a VAT return. If you already fill in a tax return it is a similar process to this. There is a form on HMRC’s website that you need to fill in and you must enter how much VAT you were charged and how much your business has charged.

    You then need to work out the difference between the two. HMRC will automatically calculate if you are due a refund and the VAT will be refunded within ten days. It’s important you are registered with HMRC and that you have registered yourself with them in order to use this service.

    How can I claim back VAT if I am self-employed?

    VAT is paid on all items that you sell as a self-employed business, but it also means that you are eligible to claim it back on items that you purchase yourself.

    This means you can basically take off 20% from any purchase you make for your business as you will be getting this back. Claiming and calculating tax can be difficult, but you can either learn about it yourself or get an accountant to help you out.

    They can either show you how to do it or do it for you, depending on your preference. You’ll be able to claim VAT back on their service too!

    This is how you can claim back VAT if you are self-employed. To find out more about this and how we can help you take the hassle out of claiming VAT back, get in touch with us via our website. You can also call us on 0203 011 1898 or fill out the contact form.

    We are a family of businesses so as well as the above, can assist customers with mortgages (WIS Mortgages) and business insurance (WIS Business Protection).


    Can I claim back VAT as a sole trader?

    Yes, you can claim VAT back if you are operating as a sole trader. As soon as you have registered your business as a sole-trader you are eligible to claim back VAT.

    Do you have to be VAT registered to claim VAT back?

    Yes, you have to be a VAT registered business in order to claim VAT. The only exception to this is if you are a visitor from overseas. You need to be registered as a VAT registered trader in order to claim VAT back.

    Can I claim back VAT if my turnover is less than £85,000?

    You are able to claim VAT back even if you turnover less that £85,000. You can opt-in to both pay and claim back VAT if your turnover is less than £85,000.

    Read about VAT best practices here:

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