Glossary

Input and output VAT

Krishna Prasad Dahal, Chartered Accountant

Reviewed by Krishna Prasad Dahal FCCA, ACA (ICAEW), FCA (ICAI India)ICAEW Council Member · Last reviewed

Definition

Output VAT (output tax) is the VAT a VAT-registered business charges on its sales. Input VAT (input tax) is the VAT it pays on goods and services bought for the business. On each VAT return the business pays HMRC the amount by which output VAT exceeds reclaimable input VAT, or claims a repayment from HMRC if input VAT is higher.

Reclaiming input VAT

Input VAT can only be reclaimed on purchases used for the business, and the business must hold valid VAT invoices. Where something is partly used privately, only the business share can be claimed. HMRC does not allow input VAT to be reclaimed on:

  • anything for personal use
  • entertaining clients or other business contacts
  • goods and services used to make VAT-exempt supplies

VAT on goods bought up to 4 years before registration (and still held) and on services bought up to 6 months before can often be reclaimed too. SmartFiling’s guide sets out what expenses you can reclaim VAT on.

Example

A VAT-registered printing firm invoices £10,000 plus £2,000 VAT in a quarter, and buys paper and ink for £3,000 plus £600 VAT. Its VAT return shows output VAT of £2,000, input VAT of £600 and £1,400 payable to HMRC.

Businesses on the Flat Rate Scheme generally cannot reclaim input VAT.

Related questions

  • When do I have to register for VAT? When taxable turnover passes £90,000 in any rolling 12 months, or is expected to pass £90,000 in the next 30 days alone; see the VAT registration threshold guide.
  • Do I need a VAT invoice to reclaim VAT? Yes. HMRC expects valid VAT invoices, plus records showing how any business share of a mixed-use cost was worked out.

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