Do You Need a VAT Invoice to Reclaim VAT?
If your limited company is VAT registered, one of the most common questions is:
“Do I need a VAT invoice before I can reclaim the VAT?”
In most cases, the safest answer is yes.
A valid VAT invoice is the main evidence that VAT was properly charged and that your company is entitled to reclaim it. But there are some important exceptions, particularly for smaller purchases and situations where the correct invoice cannot be obtained.
What should a full VAT invoice contain?
For larger purchases, you should normally ask for a full VAT invoice made out to your company.
A full VAT invoice should include information such as the supplier's details and VAT registration number, a unique invoice number, the tax point, your company's name and address, a clear description of the goods or services, the amounts excluding VAT, the VAT rates and the VAT charged. The detailed requirements are set out in Regulation 14 of the VAT Regulations 1995 and VAT Notice 700.
For day-to-day bookkeeping, the practical rule is:
Ask suppliers to invoice the limited company, not the director personally.
This gives you the strongest evidence when reclaiming VAT.
Smaller purchases: the £250 rule
There is a useful simplification for purchases of £250 or less including VAT.
A simplified VAT invoice can be used. Unlike a full VAT invoice, it does not need to show your company's name and address.
It should still show the supplier's name, address and VAT number, the tax point, what was purchased, the total amount including VAT and the applicable VAT rate.
This is why an ordinary VAT receipt from a shop, petrol station or restaurant can often be enough for a smaller business purchase.
Do not assume every till receipt is a VAT receipt, though. Check that the supplier's VAT number and VAT rate are shown.
What if the director pays personally?
Directors often pay business expenses personally and then reclaim the money from their company.
That does not automatically prevent the company from reclaiming VAT.
For example, a director may pay personally for:
a hotel while travelling on company business;
business parking;
small tools or materials;
business meals while travelling;
stationery or other small company purchases.
The important question is whether the supply was genuinely for the company's business and whether the company has suitable evidence. Current VAT guidance specifically recognises that certain business costs initially incurred by employees can still be supplies to the employer where the employer meets the cost.
For smaller purchases covered by a valid simplified VAT invoice, the absence of the company's name is not normally a problem because the rules do not require the customer's name and address in the first place.
For larger purchases, however, we would normally recommend asking for the invoice to be issued in the company's name, even if the director uses their personal card to make the initial payment.
The company can then reimburse the director.
What if the invoice is in the director's name?
This is more difficult.
An invoice addressed personally to the director may suggest that the supply was made to the director rather than to the company.
That does not necessarily mean VAT recovery is impossible in every situation, but the company may need stronger evidence to show that the purchase was genuinely made on its behalf.
For significant purchases, it is much better to ask the supplier to correct or reissue the invoice in the company's name.
A good rule of thumb is:
The bigger the purchase, the more important it is that the paperwork clearly shows the company as the customer.
What if you do not have a VAT invoice at all?
You should not simply look at a bank payment, assume VAT was included and reclaim 20%.
A bank statement proves that money was paid. It does not necessarily prove:
that the supplier was VAT registered;
that VAT was actually charged;
how much VAT was charged;
or that the supply was made to your company.
The first step should therefore be to ask the supplier for a proper VAT invoice.
There is discretion under Regulation 29 of the VAT Regulations 1995 to accept alternative evidence where the normal VAT invoice is unavailable, but this is intended for exceptional cases rather than as a substitute for proper invoicing.
Alternative evidence might include a combination of the supplier's statement, proof of payment, evidence of the goods or services received and records showing how the purchase relates to the company's business.
The evidence needs to support the fact that VAT was genuinely due and charged and that the supply was made to the company.
A pro-forma invoice is not enough
Be careful with documents marked “pro-forma invoice” or “this is not a tax invoice”.
These cannot normally be used as evidence to reclaim VAT.
Once the supply has taken place or payment has been made, you should obtain the proper VAT invoice.
Example
Busy Ltd buys a monitor for £600 including VAT.
The director pays for it personally because the company card is not available.
If the supplier issues the invoice to Busy Ltd, the company can reimburse the director and, subject to the normal VAT rules, reclaim the VAT.
If the £600 invoice is addressed personally to the director, the position is less straightforward.
The purchase may genuinely be for the company, but there is now a mismatch between the person named as customer and the company claiming the VAT.
The sensible approach is to ask the supplier to reissue the invoice to Busy Ltd.
The simple rule to follow
For VAT-registered limited companies:
Get a proper VAT invoice whenever you can.
For purchases of £250 or less, a valid simplified VAT invoice can be sufficient and does not need to show the company's name.
For larger purchases, make sure the invoice is issued to the company.
Where a director has paid personally, reimburse them through the company and keep the supporting receipt or invoice with the expense claim.
And where there is no VAT invoice, do not automatically reclaim VAT. Obtain one from the supplier first. Alternative evidence should be the exception, not your normal bookkeeping process.
Final thoughts
Good VAT records make VAT returns much easier and reduce the risk of claims being challenged later.
Before reclaiming VAT, ask:
Do we have a valid VAT invoice or receipt?
Was VAT actually charged?
Was the purchase genuinely for the company?
For larger purchases, is the invoice in the company's name?
At Busy Bee, we help limited company owners stay compliant, tax efficient and in control of their business finances.
Disclaimer: The content on this page is for general information only and should not be treated as tax, legal or financial advice. Tax planning should always be reviewed against your individual circumstances before action is taken.
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