Inputs are purchases, so input tax is VAT on purchases which you are allowed to reclaim. It is, of course, your suppliers’ output tax.

Can I reclaim VAT from before I was registered?

Yes – subject to certain restrictions. You can claim back VAT on goods purchased up to 4 years before the date of registration, as long as you still hold those goods at the time. You can claim back VAT on services up to 6 months before the date of registration. The VAT should be included on your first VAT Return. You can also claim VAT even if you use the Flat Rate Scheme.

Can I claim VAT on overheads and capital items?

Yes – VAT is quite different from Income Tax and Corporation Tax. Goods purchased for resale, overheads, and capital items are, generally treated in the same way. VAT can be claimed, with the same rules applying to each.

What are the conditions for claiming VAT as input tax?

• The expenditure must be for the purpose of the business
• The expenditure must be for the purpose of your business
• You must hold a proper VAT invoice from the supplier
• VAT must be properly charged.

What items are not eligible for input tax claim?

VAT Law provides that certain input tax is ‘blocked.’ Although you may meet all the conditions listed above, input tax is simply not allowed.

You cannot claim back VAT on the following purchases:
• Cars, unless your business is a driving school, taxi driver, or self-drive hire;
• Business entertainment, unless the recipient is a non-UK person;
• Certain items installed in new homes;
• Domestic accommodation for Directors and Proprietors.

When can I only claim back part of the VAT charged?

There are two situations where you are only able to reclaim a proportion of the VAT charged:
1. Where you make taxable AND exempt supplies. You are ‘partially exempt.’ The basic rule means that you take the percentage of your taxable supplies to the whole, and apply that percentage to the VAT, having already excluded any blocked items.
2. Where the goods or services purchased are used for business AND non-business purposes. This will apply to a charity, and to a sole trader working from home.

In both cases, input tax claimed on capital items is subject to adjustment over a number of years.

Disclaimer: these articles are brief introductory comments on some areas of VAT, You will appreciate that whilst every effort is taken to ensure accuracy, your own circumstances may be sufficiently different, such that the VAT outcome is not the same. Therefore please do not rely on the article as ‘professional advice.’ In all cases it is recommended that you seek advice applicable to your own situation.

by Leshoward