What is input tax?

By Tolley
What is input tax?

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

  • What is input tax?
  • What is input tax?
  • What conditions must be met for VAT to be treated as input tax?
  • Has a supply been made?
  • Has the VAT been correctly charged?
  • Is the supply made to a taxable person?
  • Has the business received the goods / services for the purposes of their business activities?
  • Is the recipient in receipt of a valid tax invoice or similar document?
  • Has the input tax been recovered in the VAT period covering the tax point?
  • What items are subject to an input tax restriction?
  • What happens of the business incorrectly claims VAT as input tax?

This guidance note provides an overview of what conditions need to be met before a business is entitled to treat VAT incurred as input tax. This note should be read in conjunction with the other notes in the ‘Claiming input tax’ subtopic.

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

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

What is input tax?

The term ‘input tax’ includes the following:

  • VAT incurred on goods and services that have beensupplied to a taxable person
  • VAT incurred on the acquisition of goods from another EU member state (acquisition tax)
  • VAT paid or payable on goods imported from a non-EU country (import VAT)

VATA 1994, s 24(1); SI 1995/2518, reg 29(1)

The VAT must be used, or intended to be used, for the purposes of the business carried or intended to be carried on by the person receiving the supply.

VAT paid on the above only becomes ‘input tax’ if it meets the conditions outlined below.

What conditions must be met for VAT to be treated as input tax?

The following conditions must be satisfied before a VAT registered business can reclaim input tax:

  • a supply must have beenmade
  • the supplier must have correctly charged VAT on the goods / services supplied to the recipient reclaiming the VAT
  • the supply must be made to a taxable person (ie a business that is VAT registered or required to be VAT registered)
  • the business must receive the goods / services for the purposes of their business activities
  • the recipient must be in receipt of

More on Claiming input tax: