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Input tax definition

/ˈɪnpʊt/ /taks/
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What does Input tax mean?

Input tax is the VAT which a VAT registered business incurs on its business costs. It can generally be set-off against the output tax which the business charges on its sales, the net amount being remitted to HMRC along with the VAT return. Thus if the business charges output tax of £2000 in a VAT period, and incurs £1300 input tax on its purchases, the VAT return will show a net liability of £700 and that is the amount to be remitted to HMRC. 
 
Certain input tax is ‘blocked, ie it may not be set-off against output tax. Examples are:  
 
- VAT incurred on the purchase of a motor car, unless it is intended to be used wholly for business purposes, or as a taxi, for self-drive hire, or for driving instruction 
- VAT incurred on the purchase of certain goods installed in new or converted buildings
- VAT incurred on purchases which are attributable to the making of exempt supplies, unless the VAT involved is de minimis.

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