Check which VAT you cannot reclaim

You can normally reclaim the VAT you pay on business purchases as input tax on your VAT return. For some spending the law blocks that claim, and for some the VAT is not input tax at all, even when the spending serves the business.

Hospitality for customers and other business contacts

You cannot reclaim VAT on business entertainment, which is hospitality of any kind that you provide free to people who are not your employees. That covers food and drink, hotel accommodation, theatre and concert tickets, entry to sporting events and clubs, and the use of assets such as yachts or aircraft for entertaining. It applies to customers, suppliers and other contacts, however good the commercial reason.

Where one cost covers both entertainment and other business use, only the entertainment share is blocked.

Entertaining overseas customers

The block does not apply to hospitality for an overseas customer, or someone acting for one. An overseas customer is not ordinarily resident, and does not carry on a business, in the UK or the Isle of Man, and buys from you for a business run abroad. The hospitality must also be of a kind and on a scale that is reasonable in the circumstances. A supplier or other contact based abroad does not qualify.

HMRC also expects you to account for output tax on the private benefit the guest gets, which usually cancels out the VAT you recover. The exception is spending that is necessary for strict business purposes. Hospitality that is polite, expected or improves relationships does not count, and taking a customer to a restaurant is very likely to trigger the charge. Basic food and soft drinks in your office so that a meeting can run without interruption do not. If a charge applies, you can simply treat the VAT as not recoverable.

Entertaining your own staff

VAT on hospitality for your own employees, such as parties, team-building days and outings, is input tax and is not blocked. If an employee entertains a customer or supplier, that spending is business entertainment like any other.

Cars

You cannot reclaim VAT when you buy a car, including accessories fitted at the time and delivery charges. For VAT, a car is a motor vehicle normally used on public roads, with three or more wheels, that is built or adapted mainly to carry passengers or has roofed accommodation behind the driver's seat with side windows. These are not cars: vehicles for one person, vehicles that can carry 12 or more people including the driver, caravans, ambulances, prison vans, vehicles of 3 tonnes or more unladen, vehicles built to carry a payload of a tonne or more, and special-purpose vehicles such as ice-cream vans and hearses.

A van built to carry goods is not a car, so the VAT on it is recoverable in the normal way. Fitting side windows behind the driver's seat, or a rear seat, can turn it into one.

You can reclaim all the VAT on buying a car only in the cases below. In each, the car must be a qualifying car, meaning one that no earlier owner was blocked from reclaiming the VAT on in full.

A car is used only for business if it makes business journeys alone and is not available for private use by you, your employees or anyone else. A pool car meets that test if it is normally kept at your main place of business, is not allocated to one person and is not kept at an employee's home.

If you recover the VAT in full under one of these exceptions and later use the car in a way that no longer qualifies, you must account for output tax on its current value.

Leased and hired cars

For a qualifying car you lease, you cannot reclaim 50% of the VAT on the rental, to allow for private use. The block covers the whole rental, including optional services unless they are supplied and shown separately on the invoice. You can reclaim all the VAT on a lease if the car is leased mainly as a taxi or private hire car or for driving instruction, or if you intend to use it only for business and will not make it available for private use.

The 50% block applies from the first day when you hire a car to replace an ordinary company car that is off the road. If you have no company car and hire one for no more than 10 days specifically for your business, HMRC accepts that the block does not apply.

Motoring costs that are not blocked

VAT on repairs and maintenance of a vehicle you use for business is recoverable if the business pays for the work, even if the vehicle is also used privately. A sole proprietor or partner cannot reclaim it on a vehicle used solely for their own private motoring. VAT on other motoring costs such as parking and fleet management charges is recoverable in the normal way.

Private and non-business use

VAT is input tax only on goods and services you buy for your business. VAT on something bought for private use, or for an activity that is not a business activity, is not input tax and you cannot reclaim it.

If you use something for both, work out the business share and reclaim only that part of the VAT. For example, if the VAT is £100 and a quarter of the use is for business, you can reclaim £25. No method is prescribed, but it must be fair and reasonable and you must be able to justify it. For goods, you can instead reclaim all the VAT and account for output tax on the cost of making the goods available for private use.

Costs of making exempt supplies

You cannot reclaim VAT on costs that relate to exempt supplies, which are supplies on which you cannot charge VAT. They include insurance, most finance and credit, betting and gaming, care or medical treatment by a qualifying institution, burial and cremation, and the letting of land and buildings unless the owner has opted to tax.

If you make both taxable and exempt supplies and a cost relates to both, you are partly exempt and must use a partial exemption method to work out how much VAT you can reclaim. You can still reclaim everything if your exempt input tax stays within both de minimis limits. Blocked VAT, such as VAT on business entertainment, is left out of your total input tax when you apply them.

Large purchases whose use changes

VAT you recover on land, buildings, civil engineering works, ships, boats and aircraft is adjusted if you later use the asset differently, for example by starting to make exempt supplies. This is the Capital Goods Scheme. An adjustment can mean paying VAT back or reclaiming more.

Each interval is normally a tax year of yours, starting from first use. Before 29 July 2026 the threshold for land, buildings and civil engineering works was £250,000, and computers costing £50,000 or more before VAT were also covered. From that date computers are outside the scheme and the threshold is £600,000, but the change does not apply to an item on which you incurred VAT-bearing capital expenditure before 29 July 2026.

Other purchases with no recoverable VAT

• Goods you buy under a second-hand margin scheme, or purchases within the tour operators' margin scheme, carry no recoverable VAT.
• Assets transferred to you with a business as a going concern are not supplied with VAT you can reclaim.
• If you build homes or other buildings to sell or lease at the zero rate, VAT on goods you install that are not building materials is blocked.

Invoices and suppliers

You can reclaim VAT only if you hold a valid VAT invoice from a VAT-registered supplier. An invoice marked pro-forma or "this is not a tax invoice" does not count. If an invoice is missing a required detail, ask the supplier for a corrected one. If the supplier cannot or will not provide one, HMRC may accept other evidence, but only if you took reasonable steps to get an invoice, there is no risk of fraud and you can show the supply took place. Claim on the return for the period in which you hold the invoice, within 4 years of the due date of the return on which you could first have claimed.

A full VAT invoice carries these details.

A low-value sale needs only a simplified invoice.

You do not need a VAT invoice where you spend £25 or less including VAT on phone calls, coin-operated machines, car-park charges or a single or return toll paid at the tollbooth, provided you are sure the supplier is VAT-registered.

Only a VAT-registered supplier can charge VAT. If an unregistered supplier shows VAT on an invoice, you have no input tax to reclaim, and knowingly using such an invoice to reclaim VAT is an offence.

If you reclaimed VAT you should not have

You must correct the error. Net errors of up to £10,000 can be adjusted on your next VAT return, as can errors of up to £50,000 that are no more than 1% of your Box 6 net outputs. Anything larger is reported to HMRC separately.