Reclaiming VAT on expenses in the UK might not be the most exciting part of running a business, but for VAT-registered companies, it’s an important one.  

Whether you’re new to VAT on expenses or already have some experience with the process, you’ve come to the right place. 

Let’s look at all the ins and outs of reclaiming VAT on expenses in the UK.  

The VAT rates and threshold in the UK 

If you own a business and your taxable turnover goes over £90,000 (the VAT threshold in the UK for 2025) in any 12-month period, you’ll need to register for VAT.

Once you’re VAT registered, you’ll be able to charge VAT on your sales and reclaim the VAT you’ve paid on eligible business expenses.

Here are the VAT rates in the UK for 2025/26:  

	% of VAT	What the rate applies to
Standard rate	20	Most goods and services
Reduced rate	5	Some goods and services, e.g. children’s car seats and home energy
Zero rate	0	Zero-rated goods and services, e.g. most food and children’s clothes

And here are some of the goods and services that fall under the standard UK VAT rate for 2025/26: 

Goods and services	UK VAT rate
Alcoholic drinks	20%
Soft drinks	20%
Mineral water	20%
Sports drinks	20%
Hot takeaways	20%
Confectionery	20%
Ice cream	20%
Catering	20%
Most clothing intended for adults	20%
Flowers and seeds	20%

When you don’t charge VAT

Some goods and services are VAT-exempt, meaning you don’t add VAT—even if you’re registered. 

Some examples include: 

• Financial services: loans, mortgages, investments 
• Healthcare and medical treatments: dental care, eye tests, ambulance services 
• Education and training: private tutoring, school fees, exam fees 
• Charity services: grant funding, volunteer expenses, donations  

You can check HMRC’s full list of exempt goods but remember—while you won’t charge VAT on these, you still need to record them properly. 

When you can and can’t claim VAT on expenses in the UK  

To reclaim VAT on expenses in the UK, your costs must be wholly and exclusively for business use, and you’ll need a valid VAT invoice from a VAT-registered supplier. 

What you can claim VAT on

• Office essentials: such as desks, office chairs, computers, Internet and broadband services. 
• Travel expenses: such as parking fees, motorway tolls, and car hires.  
• Mileage expenses: VAT on fuel bought for business trips (more on that later). 
• Team entertaining: such as summer staff parties, team lunches, and reward events (provided they’re open to all employees). 

What you can’t claim VAT on 

• Client entertainment: things like extravagant lunches with clients or rounds of golf with potential customers.  
• Non-business purchases: anything with a personal use element doesn’t qualify—you can’t claim VAT on your morning coffee just because you answered work emails while drinking it! 

How to claim VAT on mileage expenses in the UK

If you use your car for business travel, you may be able to reclaim VAT on your mileage expenses—but you’ll need to follow a few key steps:

Step 1. Keep your fuel receipts 

To reclaim VAT, you need proof of purchase, so make sure to keep all fuel receipts. These should be VAT invoices from petrol stations showing the total cost and the VAT amount.  

Step 2. Track your business mileage 

Since VAT can only be reclaimed on fuel used for business purposes, you’ll need a detailed mileage log.

For each trip, you should record:

• The date of travel 
• The starting point and destination 
• The reason for the journey (e.g., client meeting, site visit) 
• The number of miles driven 

Step 3. Use HMRC’s advisory fuel rates 

To calculate how much VAT you can reclaim, you’ll need to check HMRC’s advisory fuel rates. These rates vary depending on your car’s engine size and fuel type, so be sure to apply the correct one. 

Step 4. Calculate the fuel cost for business use 

Multiply your business mileage by the appropriate fuel rate.  

For example, if your advisory fuel rate is 15p per mile and you drove 200 business miles, the calculation would be: 

200 miles × £0.15 = £30.00 (fuel cost for business trips) 

Step 5. Work out the VAT reclaim 

Since VAT is already included in fuel prices, you can extract the VAT portion by dividing the total fuel cost by 6 (since VAT at 20% means 1/6 of the total price is VAT). 

£30.00 ÷ 6 = £5.00 reclaimable VAT 

At the end of the quarter, add up all your eligible mileage claims and include the total in your VAT return. 

How to claim VAT on fuel expenses in the UK

There are two main ways to reclaim VAT on fuel expenses in the UK: 

1. Reclaim all the VAT paid on fuel purchases and pay the appropriate fuel scale charge for your vehicle.  
2. Claim VAT only for the fuel used during business trips by maintaining thorough mileage records to demonstrate usage exclusively for business purposes.  

How to claim VAT on staff entertainment in the UK

If you’re planning a team event and hoping to reclaim the VAT, there are a few things you need to keep in mind.  

Let’s say you organise a company away day at an outdoor adventure park to boost team morale. To claim back the VAT on the cost, you’ll need some key pieces of evidence: 

• A VAT invoice: this should be issued by the supplier and include key details such as their VAT registration number, the date of the event, a breakdown of costs, and the VAT amount charged. 
• Proof it was for your employees: attendance records, a staff email invitation, or an internal memo confirming the event was open to all employees—not just senior management or directors. 
• A clear business purpose: documentation such as an event agenda, HR communications, or a policy statement explaining how the event contributes to team building, employee wellbeing, or company culture. 

How to reclaim VAT on expenses in the UK in three easy steps

Step 1. Keep your receipts and invoices

Let’s say you’ve just bought 5 new laptops for your business for £6,000, which includes £1,200 VAT. That VAT is money you can claim back from HMRC, but only if you have a valid VAT invoice from the supplier.  

Step 2. Add it to your VAT return 

Every quarter, you’ll submit a VAT return to HMRC.

In it, you’ll:

• List your total sales and the VAT you’ve charged customers 
• List your business purchases and the VAT you’ve paid 
• Work out the difference—this is what you either owe or can reclaim 

Step 3. Submit and get your VAT back 

Once your VAT return is ready, send it off to HMRC.  

If you’ve paid more VAT on expenses than you’ve charged on sales, HMRC will refund you the difference. If not, they’ll deduct it from what you owe. 

Just make sure to submit your return on time to avoid any penalties.  

Capture Expense automatically calculates and applies the correct VAT rate to all your transactions 

Whether you’re dealing with business purchases, travel expenses, or any other costs, our platform makes sure that VAT is accurately tracked and recorded.  

Book a personalised demo today to see Capture Expense in action.