If the business has incurred expenses which were not exclusively for business, the VAT input tax on the private use cannot be reclaimed. An example of this would be telephone charges where the business is run from home. If a telephone bill was received for £50.00 plus VAT, one third of this would be considered private use. Accordingly, one third of the VAT input tax cannot be reclaimed from HM Revenue and Customs.
The easiest way to account for the private expenses adjustments is to reclaim all the input tax in the VAT records and when preparing the VAT return make a deduction from the total input tax, disallowing for the private proportion of the tax that the business is not entitled to reclaim. Do keep a clear record of how the disallowed amounts are calculated so that you can satisfy any enquiry from the VAT office.
Concise Accountancy - Making VAT administration simple for businesses
