VAT Input Tax basics: introduction
Purpose of guidance
This manual is written primarily for HMRC staff but it can also assist customers and their professional advisers to determine the correct VAT treatment of input tax incurred on the transactions described. It supplements the basic guidance provided on HMRC’s website, in VAT Public Notices and in Revenue & Customs Briefs.
This manual gives you information and guidance so that you can work out whether input tax can be claimed. It also talks about times when a liability to account for output tax is created by an input tax claim.
This manual helps HMRC staff make decisions by telling them about:
- the relevant law and important legal decisions;
- any case specific facts they may need to establish;
- how they should apply any appropriate legal test or precedent; and
- HMRC policy, including any relevant agreements with trade organisations.
A broad understanding of the basic principles of VAT will help you get the best from this manual. Guidance on those basic principles is given in:
- VATSC Supply and consideration;
- VATPOSG Place of Supply - Goods;
- VATPOSS Place of Supply (Services);
- VTAXPER; and
- VBNB VAT Business/Non-Business VBNB10000.
Deductions and Financial Services Team is responsible for input tax policy and for this manual. We will sometimes give you a broader picture in this guidance which covers more than input tax policy. This may relate to areas for which other teams are responsible.
Please see CT & VAT intranet site for help on getting advice from a policy team.
Someone who is registered for VAT is called a taxable person. A taxable person must charge VAT on the taxable supplies they make in the course of business. The tax they charge on their taxable supplies is called output tax.
The law allows someone who is registered for VAT to reduce the amount of output tax they pay to HMRC by the amount of VAT they have been charged by their suppliers in making their taxable supplies. The tax they have been charged is referred to as input tax.
Any VAT claimed as input tax must meet all the following criteria:
- the amount claimed must be VAT properly charged by another taxable person or relate to a taxable importation or acquisition;
- the supplies on which the VAT was charged must be made to the person who is claiming the input tax;
- the supplies must have been received for the purpose of the business;
- the supplies must normally be received in the accounting period in which the claim is to be made; see VIT30500
- the person claiming input tax must hold good documentary evidence of the supplies in support of the claim; see VIT31000 and
- the supplies received must not be subject to input tax restriction in a Treasury blocking order.
- the purpose of the business requirement is not obviously met or
- the supplies are not solely used for a business purpose
you will have to think about whether input tax can be claimed. There is a degree of subjectivity in deciding whether a claim can be made. The case of Ian Flockton Developments Ltd confirms that you should consider the reasons for getting hold of certain goods or services. See VIT61080.
To apply the guidance on input tax in this manual you need to know what the term “business” means in the context of VAT. Input tax can only be claimed after it has been established that VAT was incurred for a business purpose. You will need to be familiar with the guidance on the business question in VAT Business/Non-Business VBNB20000.