For most fully taxable businesses, VAT can be reclaimed on goods and services used in the course and furtherance of their business activities. This means that businesses must consider where there is personal or private use of goods or services bought for the business and can usually only reclaim the business proportion of any VAT charged.

For example, VAT is recoverable on all the costs of mobile phones provided to employees where no personal use is allowed. Where businesses allow private calls to be made at no charge the VAT recovery must be apportioned on a fair and reasonable basis. Where employees pay for the private use of their phones the business is allowed to reclaim the input tax in full provided an output tax charge is accounted for in respect of private use.

You cannot reclaim VAT for:

• anything that is only for private use;
• goods and services your business uses to make VAT-exempt supplies;
• business entertainment costs;
• goods sold to you under one of the VAT second-hand margin schemes;
• business assets that are transferred to you as a going concern.

There are different rules for a business that incurs expenditure on taxable and exempt business activities. These businesses are partially exempt for VAT purposes and are required to make an apportionment between their activities using a 'partial exemption method' in order to calculate how much input tax is recoverable.