Input VAT is the VAT a VAT-registered business pays on its purchases, such as stock, equipment, software and professional services. As long as the purchase is for business use and you hold a valid VAT invoice, you can usually reclaim that input VAT from HMRC by deducting it from the output VAT you charged on sales. This is what makes VAT a pass-through tax rather than a real cost for most businesses.

What is the difference between input VAT and output VAT?

Output VAT is the VAT you charge customers on your sales; input VAT is the VAT you pay suppliers on your purchases. On each VAT return you subtract input VAT (Box 4) from output VAT (Box 1). If output VAT is higher, you pay HMRC the difference; if input VAT is higher, HMRC refunds you. Together they mean you only pay tax on the value your business adds.

Can I reclaim input VAT on all my business purchases?

Most business purchases allow you to reclaim input VAT, but there are exceptions. You cannot reclaim VAT on business entertainment, on the purchase of most cars, or on anything used for non-business or exempt activities. You also need a valid VAT invoice to support the claim. Purchases that are partly personal must be apportioned so you only reclaim the business share.

How do I work out the input VAT in a price I have paid?

If the price includes VAT at the standard 20% rate, divide the gross figure by 1.2 to find the net amount, then subtract the net from the gross to get the input VAT. For example, a £600 inclusive cost contains £100 of input VAT (£600 ÷ 1.2 = £500 net, £600 − £500 = £100). At the 5% reduced rate you divide by 1.05 instead. You can only reclaim input VAT shown on a valid VAT invoice.

Can I reclaim input VAT on purchases made before I registered for VAT?

Yes, within limits. You can reclaim input VAT on goods you still hold or that were used to make goods you still hold, bought up to four years before registration, and on services received up to six months before registration, provided they relate to your business activity. The claim is made on your first VAT return after registration, and you must keep the supporting invoices.

What happens if my input VAT is more than my output VAT?

If the input VAT you paid on purchases exceeds the output VAT you charged on sales in a period, HMRC refunds the difference to you, known as a repayment return. This commonly happens when a business makes large capital purchases, such as equipment or machinery, or when its sales are mostly zero-rated. HMRC may carry out checks before paying larger refunds, so accurate records help the repayment go through smoothly.

What Is Input VAT? Definition vs Output VAT

If output VAT is the money you collect for HMRC, input VAT is the money you get back. Every time a VAT-registered business buys stock, software, equipment or professional help, it pays VAT on top, and most of that VAT can be reclaimed. It is the part of the system that stops VAT from quietly taxing businesses on their own costs.

Key takeaways

Input VAT is the VAT a business pays on its purchases and expenses.
It is usually reclaimable, subtracted from output VAT on the VAT return.
If input VAT exceeds output VAT in a period, HMRC refunds the difference.
You need a valid VAT invoice, and the purchase must be for business use.
Some purchases, such as business entertainment and most cars, are blocked from reclaim.

How Input VAT Works

When a VAT-registered business buys something from another VAT-registered supplier, the price includes VAT, usually at the standard 20% rate. That VAT is the buyer input VAT. At the end of each VAT period you total all the input VAT you paid and enter it in Box 4 of your VAT return. HMRC then lets you offset it against the output VAT you charged on sales (Box 1). You only pay HMRC the difference.

This netting is the heart of VAT. Output VAT is what you owe; input VAT is what you can deduct. The result is that a business only ever pays tax on the value it has added, the gap between what it bought and what it sold, rather than on the full sale price. For a business with high purchases, input VAT can be substantial, which is why accurate records of every VATable cost matter.

There are conditions. You must hold a valid VAT invoice from the supplier, the purchase must be for business purposes, and the supply must not be one HMRC specifically blocks from reclaim. Most genuine business costs qualify.

Output VAT: The VAT a business charges its customers on taxable sales, recorded in Box 1 of the VAT return. Input VAT is subtracted from output VAT to work out what is paid to HMRC, so the two are mirror images: one is VAT collected, the other is VAT recoverable.

A Worked Example

Imagine Hassan runs a VAT-registered print business. In one quarter he charges customers £50,000 plus VAT.

His sales: £50,000 net
Output VAT charged: £50,000 × 20% = £10,000

In the same quarter he buys paper, ink, a new printer and outsourced design costing £18,000 plus VAT:

His purchases: £18,000 net
Input VAT paid: £18,000 × 20% = £3,600

His VAT return nets the two figures:

Item	Amount
Output VAT (on sales)	£10,000
Input VAT (on purchases)	£3,600
VAT payable to HMRC	£6,400

Hassan pays HMRC £6,400. He charged customers £10,000 of VAT but recovered £3,600 of his own input VAT, so the tax he genuinely bears is only on the £32,000 of value he added, at 20%. You can run the same calculation for your own purchases with the VAT calculator.

Now imagine a quarter where Hassan buys a £40,000 commercial printer (£8,000 input VAT) but sales are quiet at £20,000 (£4,000 output VAT). His input VAT of £8,000 exceeds his output VAT of £4,000, so HMRC refunds him the £4,000 difference. This is common for businesses making large capital purchases.

£10,000

Output VAT on sales

£3,600

Input VAT reclaimed

£6,400

Net VAT paid to HMRC

What You Can and Cannot Reclaim

Most ordinary business costs allow an input VAT reclaim: stock, raw materials, equipment, software subscriptions, professional fees, fuel for business use and many overheads. But HMRC blocks or restricts reclaim in several cases:

Business entertainment — VAT on entertaining clients generally cannot be reclaimed.
Cars — input VAT on buying most cars cannot be reclaimed, though commercial vehicles and cars used exclusively for business can be exceptions.
Personal or dual-use items — where something is partly private, you reclaim only the business proportion.
Exempt activities — VAT relating to exempt supplies (like insurance or certain financial services) is generally not recoverable.

There is also a time limit: you can normally reclaim input VAT up to four years after the purchase, and you can recover VAT on certain goods bought before registration (up to four years) and services (up to six months) if they were for the business. Under Making Tax Digital for VAT, all of this must be supported by digital records and filed through compatible software, so keeping every VAT invoice in a digital trail is now part of the rules, not just good practice.

Output VAT is what you owe HMRC. Input VAT is what HMRC owes you. The return is just where they meet.

TapTax, UK tax glossary

Related terms

Output VAT — the VAT you charge customers, against which input VAT is offset.
VAT return — where input VAT (Box 4) is netted against output VAT (Box 1).
VAT calculator — work out the input VAT on any purchase instantly.

What Is Input VAT? Definition vs Output VAT

How Input VAT Works

A Worked Example

What You Can and Cannot Reclaim

Related terms

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