I’m going to walk you through a practical, low-risk way to reclaim VAT on purchases that are used for both business and private purposes — without waving a red flag in front of HMRC. I’ve helped dozens of small business owners navigate these tricky areas, and the advice I give is always the same: be reasonable, be consistent, and keep the evidence. Do that, and you can legitimately reclaim the right proportion of VAT while keeping the risk of an enquiry to a minimum.

Understand the principle: only reclaim VAT on business use

It sounds obvious, but it’s the single point HMRC cares about. If an expense is partly for business and partly for private use, you must only reclaim the VAT relating to the business use. Reclaiming more than the business proportion is likely to trigger questions — especially for high-value or unusual items.

Key rule: If something is used 60% for business and 40% for private use, you should only reclaim 60% of the VAT. How you arrive at that percentage matters.

Know the common mixed‑use traps

Certain purchases commonly raise issues:

  • Cars: Generally you cannot reclaim VAT on the purchase of a car unless it’s used exclusively for business, or it’s a vehicle clearly treated as a goods vehicle (vans, pickups). VAT on running costs can sometimes be reclaimed subject to strict rules about private use.
  • Mobile phones and laptops: If used partly privately, you must apportion. Historically, HMRC expected business-only use for a full reclaim on mobile phones, but in practice a reasonable apportionment supported by records is acceptable.
  • Fuel: VAT on fuel for private use is not reclaimable. For employees using company cars, there are fuel scale charge and reimbursement routes to consider.
  • Home office costs: When you work from home, apportionment between business and personal use must be sensible and consistently applied.

    • Choose an apportionment method that’s reasonable and defensible

    HMRC isn’t expecting perfection — they’re expecting a sensible, documented method. Pick an apportionment method that reflects reality, use it consistently, and keep the calculations and supporting evidence.

    Common methods I use with clients:

  • Time-based apportionment — good for items like phones, where you can estimate business vs private call time or active use time (e.g. 70% business).
  • Usage-based apportionment — suitable for laptops or vehicles where you can track mileage or hours used for work.
  • Cost-based apportionment — useful when the private use relates to a clear portion of an ongoing expense, e.g. broadband where business traffic is estimated as a percentage of total usage.
  • Direct attribution — if part of an invoice relates wholly to business and another part wholly to private, attribute costs line-by-line and claim the business lines only.

    • Document everything — and make your method consistent

    Documentation is what turns a reasonable claim into a defensible one. HMRC will look for:

  • VAT invoices showing your name, the supplier’s details, the VAT amount and the VAT registration number.
  • A note explaining how you calculated the business proportion, dated and signed (or saved electronically) — this can be a one-page policy or an email thread.
  • Supporting evidence: call logs, mileage logs, usage reports from suppliers (mobile operators, cloud providers), timesheets or rostering data.

    • If you’re using a method for recurring items (monthly phone bills, broadband, subscriptions), record the method once and apply it consistently each VAT period. If your circumstances change, update the method and keep a dated note explaining why.

    When to ask HMRC for an agreed method

    If you’re dealing with significant sums, unusual circumstances or a business where apportionment is inherently complex, ask HMRC for agreement on a special method. A special method is an agreed way to calculate partial exemption and VAT recovery that may be different from the standard approaches. It reduces the risk of later challenges — but you need to apply and get the agreement in writing.

    Typical cases where I recommend applying for a special method:

  • Large overheads that are difficult to split by standard methods (e.g. a mixed-use event venue).
  • Significant capital purchases with mixed use (expensive equipment used both for private and commercial purposes).
  • When your standard method would produce wildly fluctuating VAT reclaims period-to-period.

    • Small examples — how to calculate a safe reclaim

    Here’s a simple example many clients find useful. Suppose you buy a laptop for £1,200 plus £240 VAT (20%). You estimate business use at 75% based on timesheets and project work:

    ItemAmount
    Net price£1,200
    VAT @ 20%£240
    Business use75%
    VAT reclaimable£240 × 75% = £180

    Keep the calculation file and the evidence (timesheets, project invoices showing work done on that laptop) together with the VAT invoice.

    Practical tips to reduce enquiry risk

  • Don’t over-claim: small underclaims are less likely to attract attention than large, aggressive claims.
  • Avoid round‑number explanations that look fabricated. Specific figures backed by evidence look more credible.
  • Keep a simple written VAT apportionment policy and apply it consistently. Put this in your accounting folder or cloud drive and reference it in your VAT working papers.
  • Use your accounting software (Xero, QuickBooks, FreeAgent) to attach invoices and notes to VAT lines so everything is in one place.
  • If you claim VAT on something that’s borderline (e.g. a car), get a second opinion from a specialist or a VAT adviser — better to be cautious than to have to repay a large sum later.

    • Record adjustments in the VAT return correctly

    Small apportionment adjustments can usually be dealt with in the normal VAT return — reduce the reclaim to the business proportion and keep the calculations on file. If you discover you’ve under‑reclaimed in previous years, you can make a claim to recover that VAT within the statutory time limit (usually four years), but be transparent and keep records. If you’ve over‑claimed, correct it promptly — voluntary disclosure reduces penalties.

    What to do if HMRC asks questions

    If HMRC opens a routine compliance check, don’t panic. Provide the evidence: invoices, your apportionment policy, and the supporting documentation that shows how you reached the business percentage. Being cooperative, organised and able to explain your method calmly goes a long way. In my experience, most checks are resolved quickly if your paperwork backs your claim.

    If you’d like a template apportionment note or a simple spreadsheet to calculate business proportions and store evidence, I’ve put together ones I use with clients — I can share those and walk you through filling them in for one of your purchases.