What is input tax

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • What is input tax
  • Conditions
  • Items subject to an input tax restriction
  • Purchased for a business purpose
  • Linked to supplies
  • Intending traders
  • VAT paid by a third party

This guidance note provides an overview of when a business can reclaim VAT incurred on goods and services purchased. The recoverable VAT is called 'input tax' or 'input VAT'.

VATA 1994, s 24(1); VIT10000; VIT20000; VIT30000; De Voils Indirect Tax Service V3.402 (subscription sensitive)

The following definition is stated in VATA 1994, s 24(1):

  • VAT on the supply to him of any goods and services;
  • VAT on the acquisition by him from another Member State of any goods; and
  • VAT paid or payable by him on the importation of any goods from a place outside the Member States

being (in each case) goods or services used or to be used for the purpose of any business carried on by him; and

  • the tax is chargeable, paid or payable under the UK or Isle of Man VAT legislation

From 1 January 2011, non-business VAT (ie the proportion of VAT incurred on supplies to, and imports and acquisitions by, a taxable person which is not used for business purposes) also counts as input tax to the extent provided for in regulations. The purpose of this change is to allow fluctuations in the extent to which items falling within the Capital Goods Scheme (CGS) are used for business / non-business purposes to be adjusted within the CGS rather than by the Lennartz procedure. Please see the Input tax - business and non-business or private use guidance note for more information.

VATA 1994, s 24(5)(a), (b)

For a flowchart outlining the procedure for claiming input tax, see the Flowchart - procedure for claiming input tax.


The following conditions

More on Claiming input tax: