Definition
Input tax is the VAT a VAT-registered business pays on the goods and services it buys for the business. It is normally reclaimed by setting it against the output tax charged on sales in the VAT Return.
Input tax and output tax
Output tax is the VAT you charge your customers. Input tax is the VAT your suppliers charge you. On each VAT Return output tax goes in box 1 and input tax in box 4, and you pay HMRC the difference. If input tax is the larger figure, HMRC pays you.
What you need to reclaim it
The purchase must be for the business, and you need a valid VAT invoice from the supplier. Where something is used partly privately, only the business share can be reclaimed.
What cannot be reclaimed
- VAT on business entertainment.
- VAT on a car that is available for private use.
- VAT on purchases used to make exempt supplies, subject to the partial exemption rules.
- Most purchases if you are on the Flat Rate Scheme.
Read more: VAT and Uploading your VAT figures.