What determines your VAT refund amount

Your VAT refund depends on how much VAT you have paid on business purchases minus the VAT you have collected from customers. The difference is what you can reclaim from HMRC. If you have paid more VAT than you have charged, you get money back. If you have charged more than you have paid, you owe HMRC the difference.

The amount also depends on whether you are registered for VAT and which scheme you use. A business under the VAT threshold (£85,000 turnover in 2024) cannot reclaim VAT at all. A business over the threshold can reclaim VAT on almost all business purchases — stock, equipment, services, fuel — but not on items like cars for personal use or entertaining clients.

The refund is calculated from your VAT return, which you file every three months (or monthly if you choose). HMRC compares the VAT you have paid on purchases (input tax) against the VAT you have charged customers (output tax) and sends you the difference if it is in your favour.

Key Takeaways

  • Your refund amount is the VAT you paid on business purchases minus the VAT you charged customers, calculated from your quarterly VAT return.
  • You can only reclaim VAT if your turnover is above £85,000 and you are registered — businesses below that threshold cannot reclaim any VAT.
  • You can reclaim VAT on almost all business expenses except cars, entertaining, and items used partly for personal reasons.
  • HMRC typically processes refunds within 30 days of your return, though some claims take longer if they are checked or if you have made errors.
  • The amount you reclaim depends on your VAT scheme — standard rate (20%), flat rate, or cash accounting — which changes how you calculate input and output tax.

How input tax and output tax work together

When you buy something for your business, you pay VAT at 20% (the standard rate). That is your input tax. When you sell something to a customer, you charge VAT at 20%. That is your output tax. On your VAT return, you subtract input tax from output tax. If input tax is higher, HMRC owes you money.

For example: you buy £1,000 of stock and pay £200 VAT. You sell £2,000 of goods and charge £400 VAT. Your return shows £400 output tax minus £200 input tax, leaving £200 owed to HMRC. But if you only sold £500 of goods (£100 VAT), your return shows £100 output tax minus £200 input tax, leaving you with a £100 refund claim.

Some purchases have no VAT or reduced VAT — books, newspapers, food, children's clothes, and certain services. You cannot reclaim VAT on these items because there is no VAT to reclaim. You also cannot reclaim VAT on expenses that are not wholly for business purposes, such as a portion of your home office heating or a car used for both business and personal trips.

VAT scheme differences and refund amounts

The scheme you are registered under changes how you calculate your refund. Most businesses use the standard VAT scheme, where you reclaim the exact VAT you have paid on invoices. This gives you the most accurate refund amount but requires you to keep detailed records and file quarterly returns.

The flat rate scheme simplifies things but usually results in a smaller refund. Instead of reclaiming actual VAT paid, you pay a fixed percentage of turnover to HMRC (between 4% and 14.5% depending on your industry). You do not reclaim VAT on purchases at all. This scheme suits businesses with low input costs but penalises those with high purchase expenses.

The cash accounting scheme lets you reclaim VAT only when you have actually received payment from customers, not when you invoice them. This helps cash flow but means your refund timing depends on when customers pay you, not when you file your return. You still reclaim the same total amount eventually, but it may arrive later.

What you can and cannot reclaim VAT on

You can reclaim VAT on almost all business purchases: stock, raw materials, equipment, tools, office supplies, professional services, phone and internet, insurance, rent, utilities, and delivery costs. You can also reclaim VAT on business travel by train, plane, or taxi, and on fuel for business vehicles.

You cannot reclaim VAT on cars, even if they are used only for business. This is a fixed rule with no exceptions. You also cannot reclaim VAT on entertaining clients or staff (meals, drinks, events), on personal items, or on anything used partly for personal reasons unless you can prove the business portion and reclaim only that percentage.

Some grey areas require documentation. If you work from home, you can reclaim VAT on office equipment and supplies but not on rent or utilities unless you have a separate business premises. If you use a vehicle for both business and personal trips, you must keep a mileage log and reclaim only the business portion of fuel and maintenance costs.

How HMRC calculates and pays your refund

HMRC calculates your refund from the VAT return you file online through your business tax account. You enter your output tax (VAT charged to customers) and input tax (VAT paid on purchases), and the system shows whether you owe money or have a refund due. You do not calculate the amount yourself — HMRC does it from the figures you provide.

Once you file your return, HMRC usually processes refunds within 30 days. The money goes into the bank account you registered with HMRC. If your return is selected for a check — which happens randomly or if HMRC spots something unusual — the refund is delayed until the check is complete. This can add weeks or months.

If you have made an error on a past return, you can amend it within a time limit (usually four years). HMRC will recalculate your refund based on the corrected figures. If you have overpaid VAT in previous periods, you can claim it back, but you must do so within the time limit or the money is lost.

Refund delays and what causes them

Most refunds arrive within 30 days, but several things can slow this down. If HMRC selects your return for a compliance check, they may ask for invoices, receipts, or bank statements to verify your input tax claims. This can take weeks or months depending on how quickly you respond and how thorough the check is.

Errors on your return also cause delays. If you have claimed VAT on personal expenses, claimed more than you actually paid, or made arithmetic mistakes, HMRC will correct the return and may reduce or cancel your refund. If you have underpaid in the past, they may offset your refund against what you owe.

If you are a new business or have recently changed your VAT scheme, your first refund may take longer because HMRC verifies your registration details and business structure. If you have multiple VAT accounts or have recently merged with another business, processing can be delayed while HMRC updates their records.

Claiming refunds for past periods

You can claim back VAT you overpaid in previous quarters or years, but there is a time limit. You can normally reclaim VAT going back four years from the date you should have claimed it. If you did not claim VAT on a purchase when you filed your return, you can amend that return within four years and claim the VAT then.

To claim a past refund, you must file an amended return for the period in question. You will need the original invoices and receipts showing the VAT you paid. HMRC will recalculate the refund for that period and add it to your current refund or offset it against money you owe.

If you are claiming VAT back from more than one year ago, HMRC may ask for more evidence because the claim is older. Keep all your business records for at least six years so you can support any claim you make. If you cannot find the original invoices, HMRC may refuse the claim.

Frequently Asked Questions

Can I get a VAT refund if my business is below the £85,000 threshold?

No. Businesses with turnover below £85,000 are not required to register for VAT and cannot reclaim any VAT on purchases. You can choose to register voluntarily if you want to reclaim VAT, but this means you must charge VAT to customers and file quarterly returns. For most small businesses, this is not worth the extra paperwork.

How long does it take to get a VAT refund?

HMRC usually processes refunds within 30 days of you filing your return online. If your return is selected for a check, the refund is delayed until the check is finished, which can take several weeks or months. If you have made errors, the refund may be reduced or cancelled.

Can I reclaim VAT on a company car?

No. VAT on cars cannot be reclaimed under any circumstances, even if the car is used only for business. This is a fixed rule. You can reclaim VAT on fuel, maintenance, and repairs for the car, but not on the purchase price itself.

What happens if I claim VAT I am not may have access to to?

If HMRC finds that you have claimed VAT on personal expenses or items you are not may have access to to reclaim, they will reduce your refund or ask you to repay the money. If the error is large or deliberate, you may face penalties and interest charges. Always keep invoices and be honest about what is business and what is personal.

Can I claim back VAT from two years ago?

Yes, you can claim back VAT from up to four years ago by amending your past returns. You will need the original invoices showing the VAT you paid. File an amended return for the period in question, and HMRC will recalculate your refund and send you the money.