Let’s be honest—VAT can feel like a bit of a minefield. If you’re a business owner, chances are you’ve had at least one moment staring at a receipt wondering, “Can I claim the VAT back on this?”

At BM & Co Accountants, we’re here to make VAT that little bit less daunting. Whether it’s travel expenses, a working lunch, or even a new office printer, knowing what VAT you can and can’t reclaim is key to keeping your business cash flow healthy and HMRC happy.

So, let’s walk through the everyday costs that might crop up in your business—and whether they’re VAT-friendly or not.

Quick VAT Basics

Before we jump in, let’s cover a few key terms:

• Standard-rated (20%) – Most goods and services in the UK
• Reduced-rated (5%) – Some energy, mobility aids, and residential conversions
• Zero-rated (0%) – Goods/services with VAT at 0% (e.g. basic food, books, children’s clothes)
• Exempt – No VAT charged and you cannot reclaim VAT on associated costs (e.g. insurance)
• Outside the scope – Not covered by VAT rules at all (e.g. statutory fees like road tax)

To reclaim VAT, your business must be VAT-registered and the goods or services must be used strictly for business purposes. Keep those receipts!

Travel Expenses: What’s Reclaimable and What’s Not?

Travel is one of the most common areas where VAT rules cause confusion. Here’s what you need to know:

Train & Bus Tickets

• Not reclaimable – These are zero-rated, so there’s no VAT to recover.

Taxis

• Reclaimable – sometimes. If the driver is VAT-registered and gives you a proper VAT receipt. Uber drivers often fall under the threshold, so be cautious.

Fuel & Mileage

• Reclaimable. VAT at 20% applies to petrol and diesel. You must keep:
  • Date of journey
  • Postcode of start and end points
  • Purpose of journey
  • Total mileage

If you’re claiming mileage at HMRC’s approved rates (e.g. 45p/mile), you can only reclaim VAT on the fuel portion of the rate—not the full amount. Read HMRC’s guidance on VAT and motoring expenses.

Flights

• Not reclaimable. Most commercial air travel is zero-rated, so no VAT to claim.

Car Parking

• Sometimes. Street parking is VAT-exempt. Private car parks may charge VAT—check for a VAT number on your receipt.

Car Hire & Leasing

• Partially reclaimable. Usually, you can reclaim 50% of the VAT for cars used for both personal and business purposes. If used exclusively for business, 100% can be reclaimed.

Buying a Vehicle

• Reclaimable in limited cases. Reclaiming VAT on a car is only allowed if the vehicle is used solely for business purposes. Examples include taxi firms or driving schools.

Other commercial vehicles like vans, lorries, tractors, motorcycles, and even motorhomes can also qualify for full VAT recovery—but only if used exclusively for business. You must be able to prove this to HMRC.

Congestion Charges & Road Tax

• Not reclaimable. These are statutory fees and are outside the scope of VAT.

Vehicle Insurance

• Not reclaimable. Insurance is exempt from VAT.

Second-hand Vehicles

• It depends. VAT can only be reclaimed if:
  • You bought from a VAT-registered dealer
  • The invoice includes VAT

Note: If purchased under the Margin Scheme, VAT is not broken out—so you can’t reclaim it.

MOTs

• Partially reclaimable. The basic MOT test is VAT-exempt. But any repairs, extras or upgrades will often carry VAT.

VAT on Food and Drink: What’s Claimable?

Food is one of the messiest areas of VAT due to varying rates and rules around entertainment. Here’s how to break it down:

Coffee

• Shop-bought coffee = zero-rated, so no VAT reclaimable.
• Café-bought hot coffee = 20% VAT, but not reclaimable if used for entertaining.

Milk (even oat, almond, soya)

• Zero-rated – no VAT, no reclaim.
• Even flavoured milk drinks (like milkshakes) are usually zero-rated unless sold as part of a hot meal.

Cakes

• Zero-rated, even if warm.

Bottled Water

• Reclaimable. VAT applies at 20%.

Biscuits

• Plain biscuits = zero-rated.
• Chocolate-coated = standard-rated (20%) and reclaimable if not part of entertainment.

Chocolate

• Standard-rated (20%) – reclaimable.

Alcohol

• Reclaimable – sometimes. VAT is reclaimable only if used internally (e.g. staff event). No reclaim if used for client entertaining.

Sandwiches

• Cold takeaway = zero-rated
• Hot or eat-in = standard-rated (20%) and only reclaimable if not entertainment-related.

Restaurant Meals

• Usually standard-rated, but not reclaimable if considered entertainment. Meals for employees on business (e.g. subsistence on a work trip) may be allowed.

Golden Rule: You can only reclaim VAT on food and drink if it’s a genuine business cost, not business entertainment. See HMRC VAT Notice 700/65 on business entertainment

Property Costs & Renovations

Renovation or Repairs

• Usually VATable at 20%. You can reclaim if the property is used for business.

New Builds

• Labour = often zero-rated
• Materials = may be standard-rated and reclaimable

Self-build VAT Refund: If you’re building or converting a home (e.g. barn conversion), you can apply for a VAT refund within 3 months of completion. Applies to:

• New homes for personal use
• Non-profit communal buildings (e.g. hospices)

Apply for a DIY VAT refund

Estate Agent Fees

• Standard-rated (20%) and fully reclaimable for commercial properties.

Utilities and Amenities

Water

• Zero-rated in most cases. Exceptions apply in industrial use (e.g. manufacturing).

Electricity and Gas

• Reduced rate (5%) if used domestically or by a charity
• Standard rate (20%) for business use

Make sure to check your supplier’s breakdown. Businesses are generally charged 20% unless a reduced rate has been formally applied.

Other VAT Questions We Get All the Time

Insurance

• Exempt from VAT. No reclaim.

Bad Debts

• Reclaimable under certain conditions:
  • Debt is between 6 and 54 months old
  • You’ve paid VAT to HMRC already
  • Debt is written off and not sold

Learn more about VAT bad debt relief

Disbursements
Disbursements are costs passed to a client (e.g. Companies House fees) that legally belong to them. These are outside the scope of VAT and must be invoiced separately.

To avoid confusion with recharges, see HMRC’s full disbursement guidance. We’ve excluded these from this guide for simplicity.

Newspapers & Magazines

• Zero-rated, so no VAT reclaimable.

Exports Outside the UK

• Zero-rated. Since no VAT is charged, there’s nothing to reclaim.
• Note: Imports may still incur VAT payable at customs.

Charitable Donations

• Outside the scope – not VAT reclaimable.

Office Supplies

• Standard-rated (20%) and fully reclaimable (e.g. ink, paper, pens).

Batteries

• Standard-rated (20%). Some energy-saving or solar-related batteries may be eligible for 5% VAT.

VAT Record keeping & Receipts

To reclaim VAT, always keep a valid VAT invoice that shows:

• Supplier’s name and VAT number
• Date of supply
• Description of goods/services
• VAT amount and total charged

HMRC’s guide on what VAT invoices must include

Invoices must be stored in line with Making Tax Digital (MTD) requirements if you’re over the VAT threshold.

Go Digital: MTD Tools That Make It Easier

Using the right tools can make VAT tracking and submissions a breeze. Software like:

• Xero
• FreeAgent
• Sage Accounting
• Dext Prepare
• Apron

All help with:

• Capturing VAT from receipts
• Filing VAT returns
• Staying MTD-compliant

We can help you get set up with the right tools for your business.

Final Thoughts: Don’t Leave VAT on the Table

VAT can be complicated, but that’s exactly why we’re here. Knowing what you can reclaim helps you:

• Boost cash flow
• Reduce costs
• Stay compliant

We recommend reviewing your expenses every quarter to spot missed VAT opportunities—and ensure you’re not overclaiming either.

At BM & Co Accountants, we offer a friendly VAT review service and can help you set up digital tools, clarify tricky rules, and reduce the chances of HMRC penalties.