VAT — Value Added Tax — is one of the most complex areas of UK tax. If you are VAT-registered, you charge VAT on your sales (output tax) and can reclaim VAT on your purchases (input tax). Understanding what you can and cannot recover is essential to managing your cash flow and compliance.
When do you need to register for VAT?
Run the numbers yourself
You must register for VAT when your taxable turnover exceeds £90,000 in any rolling 12-month period (2026/27 threshold). You can also register voluntarily below this threshold, which can be beneficial if your customers are VAT-registered businesses and you have significant VAT costs.
Can I recover VAT on business expenses?
Yes — if you are VAT-registered, you can reclaim the VAT you pay on goods and services used in your business. This is called input tax recovery. However, there are important rules and restrictions:
- The purchase must be for business use (not personal)
- You must hold a valid VAT invoice from the supplier
- The supply must be used in making taxable supplies (not exempt ones)
- Certain categories of expenditure have restricted recovery (see below)
What VAT can you NOT recover?
Some categories of VAT are specifically blocked from recovery:
- Cars — VAT on the purchase of a car is blocked unless it is used exclusively for business (no private use at all)
- Business entertainment — VAT on entertaining clients or suppliers cannot be recovered
- Non-business use — the private element of mixed-use expenditure cannot be recovered
Partial exemption
If your business makes a mix of taxable and exempt supplies, you can only recover the VAT that relates to your taxable activities. This is called partial exemption and can be complex to calculate. Common examples include: financial services, insurance, residential property lettings, and some education and healthcare activities.
VAT on vehicles
As noted above, VAT on cars is usually blocked. However, you can reclaim VAT on:
- Commercial vehicles (vans, lorries) used for business
- Fuel for business mileage (using HMRC's fuel scale charges to apportion private use)
- Repairs and maintenance on vehicles used for business
Which VAT scheme is right for your business?
- Standard rate scheme — you account for VAT on each individual transaction. Best for businesses that reclaim significant input tax.
- Flat Rate Scheme — you pay a fixed percentage of your gross turnover to HMRC rather than calculating VAT on each transaction. Often simpler and more profitable for service businesses.
- Cash Accounting Scheme — you account for VAT when you receive or make payment, rather than when you invoice. Helpful for cash flow if you have slow-paying customers.
- Annual Accounting Scheme — you make advance VAT payments based on last year's bill and file one return per year.
Making Tax Digital for VAT
All VAT-registered businesses must now keep digital records and file VAT returns using HMRC-recognised software (Xero, FreeAgent or QuickBooks). This is mandatory under Making Tax Digital (MTD). Fernside Accounting is fully MTD-compliant and can manage your VAT returns end-to-end.
How Fernside Accounting can help
We manage VAT registration, quarterly returns and MTD compliance for businesses across Woodford Green, Chigwell, Loughton, South Woodford, Snaresbrook, Gants Hill, Chingford, Epping, City of London, Wanstead. We advise on the most appropriate VAT scheme for your business and ensure you recover everything you are entitled to. Get in touch for VAT advice.