What is input VAT?

Definition of input VAT

Input VAT refers to the VAT added to the cost of certain goods and services when they are purchased. The amount of input VAT that’s added varies depending on whether the goods or services are taxed at the standard, reduced or zero rate of VAT.

VAT-registered businesses can usually claim back any input VAT that they’ve paid in a VAT period by claiming for it on their VAT return with HMRC.

Businesses that are registered for VAT must charge VAT on applicable goods and services. When filing VAT returns, these businesses calculate their VAT liability by deducting the input VAT that they paid over a VAT period against the output VAT they owed to HMRC for the same period. This allows businesses to determine how much VAT they owe to HMRC for the period.

For example:

A business pays £50,000 for goods over a quarter. The goods were taxed at the standard rate of 20% so the business paid £10,000 in VAT (£50,000 x 20%).

The business also makes £60,000 in VATable sales over the same period on goods that are also charged at the standard rate of 20%. This means the business owes £12,000 of output VAT to HMRC (£60,000 x 20%).

To calculate its VAT liability for that quarter, the business would deduct the input VAT paid (£10,000) from the output VAT owed (£12,000) on its VAT return. In this example, the business’s VAT liability for the quarter would be £2,000.

When can input VAT be claimed back?

If the total input VAT paid by a business is greater than the output VAT that it charged over a period, the business’s VAT liability will be negative. In this instance, the business can usually reclaim the difference from HMRC as a VAT refund.

File your VAT return with FreeAgent

FreeAgent’s VAT software automatically generates MTD-compatible VAT returns and allows you to submit them online directly to HMRC.

Got questions? Ask Emily!

FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.

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