How to Charge and Reclaim VAT Correctly: A Simplified Guide for UK Businesses

How Charging and Reclaiming VAT Works

VAT isn’t just about registering and charging customers 20%. Once you’re VAT-registered, you need to understand two sides of the VAT equation:

1. Charging VAT correctly on your sales.

2. Reclaiming VAT properly on your business purchases.

Get either side wrong, and HMRC could reject claims, fine you, or demand backdated payments. This guide breaks down charging and reclaiming VAT in simple terms, so you know exactly where you stand.

Charging VAT

When You Must Charge VAT

• If your business is VAT-registered, you must add VAT to most sales of goods or services

• The rate depends on the item (standard, reduced, or zero-rated).

• VAT should always be clearly shown on invoices.

👉 Example: A web design agency charging £1,000 adds £200 VAT, so the client pays £1,200.

What to Include on a VAT Invoice

HMRC requires specific details on VAT invoices:

• Business name and VAT number.

• Invoice date and unique invoice number.

• Description of goods/services.

• VAT rate applied and total VAT charged.

👉 Without these details, HMRC may reject your invoice as invalid.

Reclaiming VAT

What You Can Reclaim

• VAT on goods and services used for business purposes.

• Examples: office rent, equipment, utilities, professional services.

• VAT on stock and materials you sell on.

What You Cannot Reclaim

• Non-business or personal expenses.

• Entertainment costs for clients.

• Items used for both personal and business purposes (unless apportioned correctly).

👉 Example: A marketing agency can reclaim VAT on laptops for staff, but not on a client dinner.

Timing & VAT Returns

• You report VAT on your sales and purchases through VAT returns (usually quarterly).

• The difference between VAT charged (output tax) and VAT reclaimed (input tax) determines whether you pay HMRC or get a refund.

• Keeping accurate records is essential — mistakes can delay refunds or trigger penalties.

Why Getting VAT Right Matters

• Overcharging: Customers may overpay, damaging trust and requiring refunds.

• Undercharging: You remain liable for VAT HMRC expects, meaning the cost comes out of your profits.

• Overclaiming: HMRC can charge penalties if you reclaim VAT you’re not entitled to.

How Wexley & Associates Supports Clients

At Wexley & Associates, we:

• Ensure invoices and VAT returns meet HMRC requirements.

• Identify all reclaimable VAT to maximise legitimate refunds.

• Prevent costly mistakes by monitoring compliance throughout the year.

With our support, VAT becomes a tool for efficiency, not a risk to your business.

Expert VAT Support When You Need It

VAT is complex — but with expert advice, it doesn’t have to be. Don’t risk losing money or facing HMRC penalties.

Contact Wexley & Associates today to take control of your VAT compliance.

References

• HMRC: How VAT Works

• Related: Case Study – VAT Monitoring Failure Leads to a £100,000 Liability