--- title: "Input VAT vs Output VAT: UK Guide for 2026/27" description: "**Output VAT is the VAT a business charges on its taxable sales. Input VAT is the VAT charged to the business on its purchases and expenses.** A VAT-registered business calculates the difference on each VAT Return. When output VAT is…" url: "https://www.accountingfirms.co.uk/knowledge-bank/what-is-the-difference-between-output-and-input-vat/" updated: "2026-08-12" category: Limited Company --- # Input VAT vs Output VAT: UK Guide for 2026/27 **Output VAT is the VAT a business charges on its taxable sales. Input VAT is the VAT charged to the business on its purchases and expenses.** A VAT-registered business calculates the difference on each VAT Return. When output VAT is higher than recoverable input VAT, the balance is normally paid to HMRC. When recoverable input VAT is higher, the return may produce a repayment. ## Input VAT versus output VAT | Point | Input VAT | Output VAT | | --- | --- | --- | | Meaning | VAT incurred on business purchases | VAT due on taxable sales and other outputs | | Typical VAT Return box | Box 4 | Box 1 | | Effect | Reduces the net VAT bill when recoverable | Increases VAT due to HMRC | | Main evidence | Valid supplier VAT invoice or prescribed evidence | Sales invoices and output records | | Restrictions | Private use, exempt activity and blocked costs | Depends on liability, place and time of supply | ## What is output VAT? Output VAT is VAT a registered business must account for on taxable supplies. Taxable supplies include standard-rated, reduced-rated and zero-rated sales. A zero-rated sale is still taxable, but VAT is charged at 0%. Output VAT can also arise outside an ordinary cash sale—for example, under certain reverse-charge rules, on private use, or when business assets are disposed of. The correct tax point determines the VAT Return period. ### Output VAT example A consultancy invoices a UK customer £10,000 plus VAT at 20%. The invoice contains £2,000 of output VAT. Unless a special rule applies, the consultancy includes that £2,000 in Box 1 for the relevant return period, even if its customer has not yet paid. Cash Accounting Scheme users follow different timing rules. ## What is input VAT? Input VAT—called input tax in legislation and HMRC guidance—is VAT incurred on purchases used for the business's taxable activities. It can include VAT on stock, equipment, professional fees, software, utilities and other qualifying costs. Not every amount labelled VAT is recoverable. The claimant must be the VAT-registered person, the supply must support taxable business activity, VAT must have been correctly charged and suitable evidence must be held. ### Input VAT example The consultancy buys qualifying equipment for £3,000 plus £600 VAT and receives a valid invoice. If the equipment is used wholly for its taxable business, the £600 may be included as input tax in Box 4. ## Calculating net VAT Continuing the examples: - output VAT: £2,000; - recoverable input VAT: £600; - net VAT payable: £1,400. Box 5 of the VAT Return records the difference between VAT due and VAT reclaimed, after including any other required adjustments. ## When input VAT is restricted Input tax may be blocked or reduced where expenditure relates to: - private or non-business use; - exempt supplies; - most cars unless a specific exception applies; - business entertainment for UK clients; - a purchase on which VAT was charged incorrectly; - a margin scheme where VAT is not shown separately; or - missing or inadequate evidence. Partly exempt businesses must calculate the recoverable proportion. Mixed business/private costs also require a fair apportionment. ## Zero-rated and exempt supplies are not the same This distinction is important: - **Zero-rated supplies** are taxable at 0%. Related input VAT can generally be recovered, subject to normal rules. - **Exempt supplies** are not taxable supplies. VAT is not charged to the customer and related input tax is generally restricted, subject to partial-exemption provisions. Confusing zero rating with exemption can cause both output-tax and input-tax errors. ## Invoices and accounting records Sales records should show the net amount, VAT rate and output VAT. Purchase records should capture equivalent information from valid supplier invoices. Under Making Tax Digital, VAT records are generally maintained digitally and the return is submitted using compatible software. Reconciliations should compare VAT control accounts with the VAT Return and investigate differences caused by credit notes, imports, reverse charges, fuel scale charges, bad-debt relief or prior-period corrections. ## Common mistakes - treating all purchase VAT as automatically recoverable; - claiming VAT from a quotation or pro-forma invoice; - forgetting output VAT because the customer has not paid; - posting a gross value into the VAT amount field; - treating exempt sales as zero-rated; - duplicating input VAT; and - using the wrong VAT period. ## Frequently asked questions ### Is input VAT money owed by HMRC? Input VAT first offsets output VAT. HMRC normally makes a repayment only where the return produces a net reclaim and the claim is accepted. ### Is output VAT business income? VAT collected for HMRC is normally recorded separately from the business's net sales for accounting purposes. ### Can input VAT be reclaimed without output VAT? A business with no output VAT in a period may still have a valid reclaim—for example during start-up—but HMRC may check that it is carrying on, or genuinely intending to carry on, taxable activities. ## Related guidance See [what reclaiming VAT means](https://www.accountingfirms.co.uk/knowledge-bank/what-is-reclaiming-vat/) and [who can reclaim VAT](https://www.accountingfirms.co.uk/knowledge-bank/who-can-reclaim-vat/). ## Official source HMRC explains the rules in sections 7 and 10 of [VAT Notice 700](https://www.gov.uk/guidance/vat-guide-notice-700) and in [VAT Notice 700/12](https://www.gov.uk/guidance/how-to-fill-in-and-submit-your-vat-return-vat-notice-70012). The guidance was current for this review in August 2026.