Dealing with VAT, GST, or other indirect taxes can sometimes feel like puzzling over a complicated maze. One small mistake, and you could end up losing a refund, facing delays, or even being rejected by HMRC. But here’s the good news: if you follow the right rules and keep your paperwork in order, you can claim refunds or credits for indirect taxes safely.
Whether you run a UK business, work internationally, or are a non‑UK firm operating here temporarily, there are legitimate schemes to help you reclaim VAT. With a bit of planning, clarity about what qualifies, and proper documentation, you can navigate the process without stress.
In this guide, we’ll walk you—step by step—through how to claim refunds or credits on indirect tax without messing up. We’ll cover:
- What “indirect tax”, “VAT refund”, and “indirect tax credit” mean in a UK context?
- Who is eligible to claim refunds, and under what conditions (for example, businesses established in the UK vs. outside the UK)?
- The correct way to claim, following HMRC guidelines, from gathering invoices to submitting claims.
- Typical pitfalls and how to avoid them, to make sure you meet all compliance standards.
By the end, you’ll have a clear, realistic roadmap for indirect tax recovery with confidence that you’re staying fully within the rules.
Understanding Indirect Tax and Refunds
Before you dive into claiming refunds or credits, it helps to understand what indirect tax really is and under what conditions you can get a refund or reclaim credits under UK rules.
What is “Indirect Tax”?
Indirect tax is a tax applied on goods or services at the point of sale or import rather than directly on income or profits. In the UK, the most common form of indirect tax is Value Added Tax (VAT).
When a business buys goods or services for its operations (like importing materials, hiring services, or buying inventory), VAT may be included in the price. If the purchase is eligible and properly documented, the VAT can potentially be reclaimed, leading to a VAT refund or VAT credit. That’s part of the process many refer to as indirect tax recovery.
Who Can Claim VAT Refunds/Credits in the UK
The eligibility depends on a few important criteria:
- If you are a business established outside the UK, you may be able to reclaim VAT paid on UK purchases provided you are not VAT‑registered in the UK, have no business residence in the UK, and do not make supplies in the UK (apart from limited exceptions, like transport services for goods). For non-UK importers or exporters, see our services for international trade & customs advisory.
- If you are a UK‑based business and are VAT‑registered, you can often reclaim VAT on business expenses or input costs as long as those expenses are for taxable business activity and you have valid VAT invoices. To understand registration, see our VAT Registration Guide.
In either case, the purchases must be properly documented, and the VAT must relate to legitimate business use (not personal or non‑business use). Mixed‑use items must have VAT reclaimed only for the business proportion.
What Kind of Purchases Qualify for VAT Refund/Credit?
Depending on your business circumstances (VAT‑registered UK business vs. non‑UK business via the refund scheme), you may be able to reclaim VAT incurred on:
- Goods and services bought in the UK for business purposes.
- Goods or services imported into the UK (if import VAT was charged and no import relief applies).
- Business expenses that are clearly for business use, not personal, private, or non‑business use. If something is partly business/partly personal, only the business portion of VAT can be reclaimed. To ensure correct reclaiming, refer to VAT compliance services.
What Is Not Eligible: What You Shouldn’t Expect to Reclaim
Because rules are strict, not all purchases or expenses qualify for VAT refunds or credits. Typical exclusions include:
- Goods or services used for non‑business or personal use. If you bought something for mixed business & personal use, you can only claim the business portion.
- Most ordinary business cars: the VAT refund scheme generally restricts reclaiming full VAT on cars, e.g., only 50% VAT on hire or leasing, and usually disallows cars purchased outright for business use under the non‑UK business reclaim scheme.
- Business entertainment or hospitality expenses: VAT on entertainment is generally non‑reclaimable; only very basic hospitality for overseas business visitors may sometimes be eligible, and even then under strict conditions.
- Goods and services used to make supplies in the UK (under the non‑UK business refund scheme)—essentially, if you’re effectively operating in the UK, the refund scheme may not apply.
Why It Matters: The Purpose of Indirect Tax Recovery
Understanding these rules carefully—what qualifies and what doesn’t—is essential for a smooth and successful indirect tax refund or credit claim. This clarity helps you:
- Avoid rejected claims or partial refunds due to ineligible expenses or incorrect documentation.
- Keep your accounting clean, accurate, and compliant with HMRC requirements.
- Ensure you’re not accidentally claiming VAT on mixed‑use or personal items, which could lead to penalties.
- Make the most of valid opportunities to reclaim VAT and reduce business costs legitimately. For penalties or exclusions, see: UK VAT Penalties Guide.
How to Claim Refunds on Indirect Tax Step‑by‑Step
If you want to reclaim VAT or indirect tax credits correctly, follow these key steps carefully:
1. Gather Valid Documentation
- For each purchase or expense you want to reclaim, make sure you have a VAT‑compliant invoice or receipt showing supplier details, VAT amount, dates, and description of goods/services. If your digital system isn’t MTD compliant, explore MTD Software Integration & Automation.
- If you bought goods or services before registering for VAT, you may still be able to reclaim for goods up to 4 years old and services up to 6 months before registration, provided they’re still used by your business.
2. Check Your Eligibility & Business Use
- You must be VAT‑registered (or, if a non‑UK business using a refund scheme, meet the criteria when applicable).
The expenses must be for business use. If any item is partly personal, only the business proportion can be reclaimed.
3. Fill in the Correct VAT Return or Claim Form
- If you’re a VAT‑registered UK business, include reclaimable VAT on your normal VAT return. Learn how to file online Submit through the VAT Return Online Guide.
- If you’re a non‑UK business using the refund scheme, complete the prescribed claim form (e.g., “VAT65A” as per HMRC guidance) and attach invoices plus a “certificate of status” proving business registration abroad.
4. Submit Before Deadlines / Claim Period Ends
- For non‑UK business refund claims: claims must cover a “prescribed year” (from 1 July to 30 June) and be submitted no later than 31 December following the end of that period.
Late or incomplete claims risk being rejected. If you face disputes or appeal situations, consult with an expert at HMRC Appeals & Dispute Resolution.
5. Keep All Original Records
- Retain original invoices, receipts, and documentation for the full period HMRC may ask to inspect.
- If you reclaim tax on mixed-use items, maintain clear records detailing the proportion of business vs. personal use.
6. Submit and Wait for Processing
Once submitted (via VAT return or refund claim), HMRC will review if everything’s correct, and you’ll receive your refund or tax credit. Processing times can vary.
Common Mistakes to Avoid When Claiming VAT: What’s Often Ineligible
When you try to reclaim VAT or indirect tax credits, a few common errors can trip you up, so it’s worth knowing them from the start to make sure your claim isn’t rejected.
Typical Pitfalls & Ineligible Expenses
- No valid VAT invoice or poor documentation. If you don’t have a VAT‑compliant invoice showing the supplier name, VAT amount, and date, you generally can’t claim the VAT back.
- Mixing personal and business use. If an item or service is partly personal (mobile phone, electricity at home office, vehicle fuel, etc.), you can only reclaim the portion used for business.
- Claiming VAT on entertainment, hospitality, or client‑facing events: VAT on costs for entertaining clients, customers, or non‑employees is generally non‑reclaimable under HMRC’s business entertainment rules.
- Claiming VAT on exempt supplies or VAT‑exempt business activities. If your business makes VAT‑exempt supplies, then VAT incurred on purchases directly related to those exempt supplies cannot always be reclaimed.
- Overlooking correct apportionment for mixed‑use items (e.g., partly business, partly personal), you must carefully calculate and document the business portion before reclaiming. Wrong apportionment is a common cause of claim rejection. Read relevant warning cases in top tariff classification mistakes.
Using simplified schemes incorrectly (e.g., Flat Rate Scheme). If you’re on certain simplified VAT schemes, your ability to reclaim VAT on purchases may be limited or different.
Why Being Careful Matters
Getting this right ensures you stay compliant with HMRC, avoid audits or penalties, and actually get the VAT or tax credits you deserve. Poor documentation or incorrect claims not only risk rejection, but they may also trigger future problems when filing VAT returns or under review.
Tips & Best Practices for Smooth VAT/Indirect‑Tax Recovery
If you want your VAT or indirect‑tax refund claims to go through smoothly without delays or rejections, following these best practices can really make a difference:
- Keep clear, accurate records
Maintain valid VAT invoices (or electronic copies) for all purchases and services. As per HMRC rules, you must keep records of everything you buy and sell, including invoices you receive. If you need structured VAT optimisation, see our service page on tax optimisation & planning.
If you claim VAT on a mixed‑use expense (business + personal), make sure you can clearly show how you calculated the business portion. - Use digital accounting or bookkeeping tools (if required)
For VAT‑registered businesses, maintaining a digital VAT (Value Added Tax) account is especially helpful under “Making Tax Digital” rules. That means logging VAT on purchases and sales, time of supply, and values excluding VAT for every transaction. - Reclaim VAT only on business‑use and eligible expenses.
Ensure that the expense is for a taxable business activity or business use. VAT cannot be reclaimed on personal expenses or on supplies used for exempt or non‑VATable business activities.
For vehicles, for example, you might reclaim VAT only if the vehicle is used “business‑only” (not personal commuting) or apply correct apportionment when there’s some personal use. - Mind the timing when claiming pre‑registration VAT.
If you purchased goods or services before you became VAT‑registered, you may still reclaim VAT, but only under certain conditions. For example, for goods: up to 4 years before registration (if still held), or for services: within 6 months before registration and only if they relate to taxable business activities. - Submit accurate VAT returns and claims promptly.
For all input tax you wish to reclaim, include it in the correct VAT return period, usually the period when the tax point occurred (or date of import, for imports).
Incorrect or late claims may lead to denial or even the requirement to repay VAT. - Be extra careful if using special VAT schemes.
If you use a simplified VAT scheme (for example, the Flat Rate Scheme), your ability to reclaim VAT on purchases might be limited except for certain capital assets above a threshold. - Keep backup documentation and proof for any mixed‑use or complex claims.
For claims involving mixed‑use items (e.g., home‑office utilities, car usage, partially personal expenses), keep detailed records showing how you apportioned the business vs. personal use. This helps justify the claim to HMRC if asked.
Conclusion
Navigating the maze of VAT and indirect‑tax credits doesn’t need to be scary. If you stay organized, follow HMRC rules carefully, and submit accurate claims, you can reclaim what you’re entitled to without stress. Proper record-keeping, clear documentation, and honest business-use allocation are key pillars of successful indirect tax recovery.
At Finsoul Network, we believe in empowering businesses to claim refunds and credits the right way, legally, transparently, and effectively. Use this guide as your roadmap to avoid pitfalls, stay HMRC‑compliant, and maximize your chances of a smooth VAT/GST reclaim.
Whether you’re a UK‑based firm or a non‑UK business claiming credits under the official refund scheme, keep this guide handy. With care and the right approach, you can confidently walk through the tax refund process and keep more of what’s rightfully yours.
Let Finsoul Network be your partner in navigating VAT claims, so you don’t end up messing up the details.
Frequently Asked Questions (FAQs)
1. How long do I have to submit a VAT refund claim or request?
You reclaim VAT in the VAT return for the period when the tax point occurred. For non-UK businesses using the refund scheme, the claim year runs from 1 July to 30 June, and the deadline is 31 December after that year.
2. How long does the refund or credit process take? When will I get the money?
HMRC usually pays VAT refunds within about 30 days of receiving your return.
Non-UK refund scheme claims can take up to 6 months, especially if HMRC asks for extra information.
3. What happens if my refund claim is rejected or delayed?
If HMRC delays a refund beyond normal timelines, you may receive repayment interest. If a non-UK claim is rejected, HMRC will explain why and return your original invoices. You can resubmit with corrected or missing documents if you believe the decision was wrong.
4. Can I reclaim VAT paid before I was VAT-registered?
Yes. You can reclaim VAT on goods bought up to 4 years before registration and on services up to 6 months before registration, as long as the goods are still used in the business.
5. Are there types of expenses or purchases that cannot be reclaimed?
Yes. VAT on client entertainment is usually not reclaimable, and VAT linked to exempt business activities is not eligible. For mixed personal and business expenses, only the business portion can be reclaimed and must be properly documented.