Have you ever been out and had a cup of coffee with someone else, who paid and then offered you the VAT receipt 'so you can get the VAT back'?
This common offer shows, at best, a lack of understanding about how the recovery of input VAT (the VAT you have paid on what you buy – called a 'taxable supply' in VAT law) works.
There are seven basic conditions that must be met before VAT can be recovered by a business. These are:
- The business must be registered for VAT ('be a taxable person') at the date the claim for recovery is made. If the business is not VAT registered at the time the taxable supply was made, there are special rules about whether or not it can be recovered after the business becomes VAT registered;
- There must be a supply of goods or services;
- The supply must be to the taxable person who reclaims the input VAT;
- The goods or services must be being used for a business purpose;
- The taxable supply must have been made for a business purpose;
- Input VAT must have been correctly charged (input VAT charged incorrectly is strictly payable by the supplier but not recoverable by the purchaser); and
- The goods or services supplied must have a direct and immediate link to a transaction which is itself subject to VAT (at any rate). This includes transactions which are subject to zero-rate VAT but excludes those that are VAT exempt.