A "VAT reclaim" is reclaiming the VAT paid on goods and services, if they have been purchased for use in your business. You can also, reclaim VAT if you have overpaid it previously as long as you are VAT registered and have historical records to prove it.
How does it work?
Businesses owners are either:
- Overpaying/underpaying VAT
- Missing VAT registration
- Not knowing the correct VAT rates on products
- Paying VAT on exports
These problems lead to audits or inspections from the VAT office which could result in fines and penalties.
Common mistakes while adding VAT:
The most common of these problems, is that sellers add the wrong VAT rate to a product as they are unaware of the correct percentages. This can be very difficult to track, as there could be thousands of transactions that happen daily.
The correct VAT rates should be added to the products whether they are 5%, 20% or 0%.
An example would be; if you were selling children’s clothes within the UK and you added the standard UK VAT rate of 20%, this would in fact be incorrect; because selling children’s clothes does not need to pay VAT as it is a zero rated item.
Secondly, sellers tend to deduct VAT on the GROSS amount which is incorrect. But, the accurate way to apply the VAT is on the NET amount of the sales.
So, in order to reclaim VAT, you must have appropriate documentary evidence to back up your VAT reclaims. For more information on VAT rates on products click here.
If you want to apply VAT reclaims for sales and purchases that you made, but not sure where to start – let us know and we will take care of it for you.