What is input VAT?
Input VAT is the VAT a VAT-registered business pays on its business purchases and expenses, which it can usually reclaim from HMRC on its VAT return.
What input VAT means
When a VAT-registered business buys goods or services, the supplier usually charges VAT. That VAT is input VAT. On each VAT return you deduct your input VAT from the output VAT you have charged your own customers, and pay HMRC the difference. If input VAT is bigger, HMRC repays you.
To reclaim input VAT you need a valid VAT invoice, the purchase must be for your business, and it must relate to supplies you make that are taxable (including zero-rated). VAT on costs relating to exempt supplies generally cannot be reclaimed, subject to partial exemption rules.
Example
A graphic design studio's VAT quarter:
| Purchase | Net | VAT |
|---|---|---|
| New laptop | £1,500 | £300 |
| Software subscriptions | £450 | £90 |
| Studio rent (landlord opted to tax) | £3,000 | £600 |
| Client lunch | £120 | £24 (not reclaimable) |
| Input VAT reclaimed | £990 |
If the studio charged £6,000 of output VAT in the quarter, it pays HMRC £6,000 − £990 = £5,010.
What you cannot reclaim
- Business entertainment of clients and suppliers
- Most cars, unless used exclusively for business (vans are fine)
- The private-use element of anything used partly for personal purposes
- Purchases with no valid VAT invoice, or from suppliers not VAT registered
- Costs relating to exempt supplies, beyond the partial exemption limits
VAT on costs before you registered
When you first register for VAT, you can usually reclaim VAT on goods bought in the previous four years that you still hold, and on services bought in the previous six months, as long as they relate to your VAT-able business.
Why it matters for your business
Every pound of input VAT you miss is a pound of profit lost. Equally, reclaiming VAT you are not entitled to leads to assessments and penalties if HMRC checks. Capturing receipts with an app and coding them correctly in Xero or QuickBooks makes sure each claim is supported by the right invoice.
Keep the VAT invoices themselves, not just card statements. HMRC can ask to see them for up to six years, and a bank statement alone does not prove the VAT was charged or that the supplier was VAT registered. Digital copies captured by a receipt app are acceptable.
Common questions
Generally no. You need a valid VAT invoice showing the supplier's VAT number. For small purchases under £25 including VAT from certain sources, such as car park machines, HMRC accepts claims without an invoice. Keep records of any you claim this way.
Yes, on fuel used for business journeys. If the fuel is also used privately, you either reclaim only the business proportion based on mileage records or reclaim it all and pay a fuel scale charge.