Definition
Input VAT is the VAT a UK business pays on its purchases of goods and services. It is reclaimed on the quarterly VAT return as a reduction of the net VAT payable to HMRC, provided the business is VAT-registered and the supply is for taxable business use. Output VAT (on sales) minus input VAT (on purchases) equals the net VAT due to or refundable from HMRC. The concept exists in every VAT regime worldwide and has the equivalent name input tax credit in AU, NZ, CA, and SG.
What input VAT means in practice
For a UK bookkeeper, input VAT is the daily recovery operation that runs alongside every supplier invoice. Each bill captured in Xero or QuickBooks is split between the net cost (which posts to the expense account) and the VAT portion (which posts to the input VAT control account). At the end of the quarter, the input VAT control account is the total reclaim figure that appears in box 4 of the VAT return.
The mechanics are simple in the clean case: a 1,200 invoice from a VAT-registered supplier (1,000 net + 200 VAT) produces 1,000 of expense and 200 of input VAT. The 200 reduces the quarter’s VAT liability. The complications come from the three buckets HMRC blocks (business entertainment, motor cars, non-business portion of mixed-use items) and from partial exemption (the apportionment of overhead VAT for businesses making both taxable and exempt supplies).
A practical example: a UK consultancy’s October-December 2026 quarter. Total input VAT on purchases captured: 12,400. The bookkeeper reviews and removes 600 of client-entertainment VAT (blocked), 800 of motor car VAT (the company car is dual-use, the bookkeeper blocks all of it), and 200 of personal items wrongly coded to the business account. The corrected input VAT for the quarter is 10,800, which goes in box 4 of the VAT return.
How input VAT works by country
United Kingdom
Input VAT is reclaimable when supported by a valid tax invoice (simplified VAT invoice for totals up to 250, modified or full VAT invoice above 250) and the supply is for taxable business use. HMRC blocks input VAT recovery on three categories under VAT Notice 700: business entertainment (UK and overseas client entertainment, distinct from staff entertainment which is allowable up to 150 per head), motor cars unless used exclusively for business (taxi or driving-school vehicles), and the non-business portion of dual-use items.
Partial exemption applies where the business makes both taxable and exempt supplies. The standard method splits input VAT on overheads in proportion to taxable vs total supplies. The de minimis rule lets a business reclaim all input VAT if the exempt portion is below 625 per month and 50% of total input VAT.
Australia
Australia uses the term input tax credit (ITC) for the equivalent concept under GST. Tax-invoice documentation rules apply at the AUD 82.50 (no tax invoice needed) and AUD 1,000 (buyer identity required) thresholds. The ATO’s “creditable purpose” test is the AU equivalent of the UK “taxable business use” test.
New Zealand
New Zealand uses “input tax” or “input tax credit” for the equivalent concept under GST. Taxable supply information documentation rules apply at NZD 200 (till receipt sufficient) and NZD 1,000 (full details required) thresholds since the April 2023 reforms.
Canada
Canada uses “input tax credit” (ITC) for the equivalent concept under GST and HST. The CRA operates three tiers under the Input Tax Credit Information Regulations (under CAD 100 simplified, CAD 100-499.99 intermediate, CAD 500+ full). The “no receipt no deduction” rule is enforced strictly on audit.
Singapore
Singapore uses “input tax” for the equivalent concept under GST. IRAS section 19 of the GST Act sets out the reclaim conditions: the goods or services must be supplied to the business, the business must be GST-registered, the supply must be used for taxable purposes, and the supporting tax invoice must show the supplier’s GST registration number.
Related terms
Input VAT is one half of the VAT control account:
- VAT is the UK indirect tax this concept sits within.
- Output VAT is the mirror: VAT charged on sales.
- A tax invoice is what supports the input VAT reclaim.
- Input tax credit is the equivalent term in AU/CA/NZ/SG.
- Reverse charge VAT shifts the input VAT mechanism for cross-border services and UK construction.
- MTD requires input VAT records to be kept digitally with digital links.
See also
For the full UK VAT lifecycle including return preparation, see the UK VAT and MTD guide.
FAQ
See the answered questions above for what can be reclaimed, blocked input VAT categories, and partial exemption rules.