What is input VAT?

Input VAT refers to the VAT that is paid by businesses on their purchases of goods and services. This input tax is recoverable, meaning that businesses can reclaim this amount from the tax authorities when they complete their VAT returns. The reclaim process allows businesses to offset the VAT they have paid on their inputs against the VAT they have collected from their own sales, ultimately reducing their tax liability.

This concept is essential for businesses that are registered for VAT as it helps maintain cash flow and ensures that the VAT system is neutral for businesses, allowing them to pass on the tax burden only to the end consumer. By being able to reclaim input VAT, businesses can better manage their costs and pricing strategies, which supports overall financial health and competitiveness.

The other options describe different aspects of VAT, such as output VAT, which relates to the VAT collected on sales (the first option), or fail to capture the definition relevant specifically to businesses' purchases and the reclaim process associated with input VAT.