I have a small business in UK and it is VAT registered (Standard rate). When I make a business purchases such as a laptop I reclaim VAT from HMRC. For example I bought a laptop worth £1200 (1000 + 200 VAT). I can reclaim the £200 VAT. I will add the net cost of the laptop £1000 (1200 - 200 VAT reclaimed) as business expense in the year end accounts.
Now my question is will I be paying corporation tax on the £200 VAT reclaimed.
I'm trying to understand the effective cost of goods purchased for business. Will the business save the full reclaimed VAT or it can only save after the 20% or so corporation Tax.

Hope my question makes sense. Thanks S

1 Answer 1


It is most likely that you should change your registration to use the appropriate flat rate scheme for your business; this is most likely to get you free money. For example, I use a flat rate scheme where of any £100 bill, £120 inclusive VAT, I pay 14.5% of the £120 = £17.40 VAT to the government, putting £2.60 of every bill into my pocket. Unless you have very significant expenses, this will save you money. Every year you can make ONE purchase over £2,000 (not £1,999 but over £2,000) with a single bill and deduct the VAT paid from your VAT bill.

You pay corporation tax on profits. Your profits are your income, minus your expenses. The expenses are including VAT that you pay to suppliers. If you reclaim £200 VAT, then your expenses are £200 less, your profit is £200 more, and you pay corporation tax on those £200. Don't think about it as "corporation tax on reclaimed VAT", think of it as "increased profit, and increased corporation tax because of the increased profit. ".

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