What is Input VAT (UK)?

Asking the question ‘what is input VAT UK?’ is essential if you are a VAT-registered business, or about to become one.

In basic terms in the UK, input VAT is VAT that’s incurred on goods or services you purchase in the course of making VATable supplies. If your business is VAT registered, you can deduct the cost of the input VAT against your output VAT. 

Read on to learn about what qualifies as input VAT, and learn how you can offset this against your output tax. We’ll also touch on how and when to register your business for VAT.

What is the VAT threshold in the UK?

You must register for VAT if your business has a taxable income exceeding £85,000 in a rolling 12-month period.

You must also register for VAT if you expect to exceed this threshold within the next 30 days alone. 

What is input VAT?

Let’s take a closer look at input tax and what that means for businesses in the UK. As stated above, input tax is the VAT element of costs incurred in carrying on your business activities.

This amount is offset against the output tax that your business incurs through sales. 

What is output VAT?

The VAT charged on the supply of VATable goods/services your VAT-registered business makes is your output tax.

Output tax is payable to HMRC through the submission of VAT returns. Qualifying input tax can be deducted from the final output tax figure. 

What is a VATable supply?

It’s important to understand the VATable activities of your business. A supply is VATable if it’s of qualifying goods/services and made by a VAT-registered business.

Therefore, when you register for VAT, you must charge VAT when you make taxable supplies. 

VAT is not accounted for on services or goods that are exempt or outside the scope of UK VAT. Different VAT rates are applied to goods and services.

Taxable supplies can be subject to either the standard rate (20%), reduced rate (5%) or zero-rate (0%). You can find out information on VAT applicable activities and rates on the GOV.UK website.

Should I register for VAT?

You must register for VAT if you exceed the VAT registration threshold retrospectively or in the next 30 days alone.

You may also voluntarily register even if your taxable supplies don’t exceed the £85,000 threshold.

By registering for VAT, you can reclaim input VAT incurred in the course of making VATable supplies.

Furthermore, you can register for VAT before you start making supplies that are taxable to claim for any input VAT on your start-up expenses. 

Once you’ve registered for VAT, you’ll have to complete quarterly VAT returns to HMRC.

Businesses that make zero-rated taxable supplies and that receive VAT repayments can benefit by completing a monthly VAT return rather than quarterly. 

Keeping accurate records for your VAT return

All businesses submit VAT returns online and make payments electronically.

It is important to maintain accurate records that are up to date, as this is a requirement of all VAT-registered businesses.

You must retain copies of all sales and purchase invoices as part of your records.

Furthermore, you should keep an accurate VAT account that details output tax that is payable, and input tax that can be recovered by the business. Keep these records for six years.

The key differences between input VAT and output VAT

All businesses that meet the VAT threshold must charge VAT on the sales they make. This VAT is known as output tax.

This is charged to the customer by VAT-registered businesses and paid across to HMRC via the submission of VAT returns. 

Input VAT is incurred on the purchase of goods/services. Input tax can be offset against output tax that is owed to HMRC.