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Input tax

Also called: Input VAT

What is input tax?

Input tax is the VAT a business pays on its purchases and expenses.

A business registered for VAT can usually claim it back from HMRC.

At the end of each VAT period the input tax is set against the output tax, and only the difference is paid.

Example

In one VAT period a shop charges £900.00 of VAT on its sales and pays £550.00 of VAT on its purchases. Its input tax is £550.00. It pays HMRC the difference, £350.00.

Why it matters

In the books a purchase is posted net. The input tax is debited to the VAT account, because it can be claimed back.

Practise it

  1. 1Output tax and input tax: which is which?10 min, easyFree
  2. Charging VAT10 min, easyPremium
  3. Posting VAT12 min, mediumPremium
Practise it nowOutput tax and input tax: which is which?

Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].