Taxation (UK) · The computation of VAT liabilities

Input Tax Recovery and Irrecoverable VAT in TX-UK

Updated 11 October 2026 · Fact-checked

Input tax is VAT you pay on purchases. A VAT-registered business can normally reclaim it if the purchase is for taxable business use. You cannot reclaim VAT on entertaining UK customers, on cars with private use, or on non-business items. Irrecoverable VAT is then treated as part of the cost.

Understand Input Tax Recovery and Irrecoverable VAT

When you buy goods or services for your business, the supplier charges you VAT. This is input tax. When you sell, you charge output tax. Each VAT return, you pay HMRC output tax less input tax. So input tax recovery reduces the VAT you pay.

But not all input tax can be reclaimed. The VAT must relate to a business purpose and to making taxable supplies. Some items are blocked by specific rules. The three the exam tests most are business entertainment, motor cars and non-business items.

Business entertainment means hospitality for clients and customers, such as meals, drinks and tickets. The input VAT on entertaining UK customers is blocked. Entertaining your own employees is different. Staff entertainment is normally recoverable, as long as it is for staff only. If staff attend a client event, the VAT on their share is recoverable only where the cost is split sensibly. The exam usually keeps this simple. Overseas customers are also a point to watch: the block applies only to UK customers. Input VAT on entertaining overseas customers is recoverable.

For cars, the general rule is that input VAT on the purchase of a car is blocked where there is any private use, including home-to-work travel. It can be reclaimed in full only if the car is used exclusively for business, for example a taxi, a driving school car or a car held as trading stock for resale. Input VAT on a van or lorry can normally be reclaimed. Where a business leases a car with private use, 50% of the VAT on the lease charge is recovered. The VAT on repairs and running costs of a car is recoverable, as these are not purchases of the car itself. Fuel for private use is dealt with by the fuel scale charge or by not reclaiming the private element.

Non-business items are things bought for private purposes, such as the owner's personal shopping or a private home extension. These are outside the scope of input tax recovery. If an item has mixed business and private use, only the business proportion is reclaimed. Irrecoverable VAT is added to the cost of the item. For a sole trader or company, this affects the cost used for income tax or corporation tax, and for capital allowances.

Key rules to remember

VAT payable: VAT payable = Output tax − Recoverable input tax; If the result is negative, HMRC owes the business a repayment.
VAT standard rate: VAT = VAT-exclusive price × 20%; VAT-inclusive price × 20/120 = VAT; The standard rate in the ACCA tax tables is 20%. Use 20/120 (1/6) to extract VAT from a gross figure.
Business entertainment: Input VAT on client entertainment: not recoverable; Staff-only entertainment is normally recoverable.
Motor cars with private use: Input VAT on car purchase: not recoverable if any private use; Recoverable in full only if wholly business use, such as a taxi or a car held for resale.
Leased cars with private use: Recoverable VAT = 50% × VAT on the lease payment; Applies where the car has private use. If it is used wholly for business, all the VAT is recoverable.
Non-business items: Input VAT on private items: not recoverable; For mixed use, reclaim only the business proportion.
Irrecoverable VAT: Cost for tax = Net cost + Irrecoverable VAT; Irrecoverable VAT is included in the cost of the item.

How to solve Input Tax Recovery and Irrecoverable VAT questions

Use this method for any question asking what input tax can be reclaimed or what a business pays HMRC.

1List every purchase and note its VAT. If you are given VAT-inclusive figures, convert using 20/120 for the VAT.
2Check whether each purchase is for the business and used to make taxable supplies. Remove non-business or private items.
3Identify blocked items. Client entertainment and cars with private use are the usual ones. Staff entertainment is normally recoverable.
4For leased cars with private use, take 50% of the VAT as recoverable. For mixed-use items, apportion to the business part only.
5Total the recoverable input tax and the irrecoverable input tax separately.
6Compute VAT payable as output tax less recoverable input tax.
7If asked, add irrecoverable VAT to the cost of the asset or expense for the other taxes.
8Write one short line of reasoning beside each item so marks are awarded even if a figure is wrong.

Quickest way: Tick, block, total

When to use it: Use this in objective test questions where you have a list of purchases and must find the recoverable VAT quickly.

Go down the list and mark each item as Reclaim or Block.
Block client entertainment, cars bought with private use, and private items.
Reclaim everything else, including vans, repairs and staff entertainment.
Add the VAT on the Reclaim items only.
Subtract from output tax. Check whether the answer is a payment or a repayment.

Common mistakes in Input Tax Recovery and Irrecoverable VAT

Reclaiming VAT on client entertainment.
Students see a business purpose and assume the VAT is recoverable.
Fix: Remember that the block depends on who is being entertained. Clients are blocked, staff are normally not.
Reclaiming VAT on a car because it is mainly used for business.
Mainly business use feels close enough to business use.
Fix: The car rule needs wholly business use. Any private use, including commuting, blocks the VAT on purchase.
Blocking VAT on car repairs or servicing.
Students apply the car block to everything car related.
Fix: The block applies to the purchase of the car. VAT on repairs and servicing is recoverable, apart from any private element.
Taking 100% of VAT on a leased car with private use.
Students forget leasing has its own rule.
Fix: Recover 50% of the VAT on the lease where there is private use.
Using 20% instead of 20/120 on VAT-inclusive amounts.
Students rush and multiply the gross figure by 20%.
Fix: If the price includes VAT, multiply by 20/120. If it excludes VAT, multiply by 20%.
Forgetting to add irrecoverable VAT to the cost.
Students treat VAT as separate from the expense.
Fix: When VAT cannot be reclaimed, it becomes part of the cost of the item, so include it in the figure used for other taxes.

Worked examples

Example 1

A VAT-registered trader charged output tax of £18,000 in a quarter. Purchases for the quarter, all exclusive of VAT, were: raw materials £30,000; entertaining customers £2,000; a van £15,000; a car for the owner, with private use, £20,000. All are standard rated at 20%. Calculate the VAT payable.

Show the solution

Raw materials VAT: £30,000 × 20% = £6,000. Recoverable.
Customer entertainment VAT: £2,000 × 20% = £400. Not recoverable.
Van VAT: £15,000 × 20% = £3,000. Recoverable, as a van is not a car.
Car VAT: £20,000 × 20% = £4,000. Not recoverable, because of private use.
Recoverable input tax: £6,000 + £3,000 = £9,000.
VAT payable: £18,000 − £9,000 = £9,000.

Answer: VAT payable to HMRC is £9,000. Irrecoverable VAT is £400 on entertainment and £4,000 on the car.

Example 2

A company pays £4,800 including VAT at 20% for a client dinner and £2,400 including VAT at 20% for a staff party. It also leases a car used partly for private purposes at £3,600 including VAT per year. Calculate the recoverable input VAT and the irrecoverable VAT on these three items.

Show the solution

Client dinner VAT: £4,800 × 20/120 = £800. Not recoverable.
Staff party VAT: £2,400 × 20/120 = £400. Recoverable.
Lease VAT: £3,600 × 20/120 = £600.
Car has private use, so recoverable lease VAT is 50% × £600 = £300. Irrecoverable is £300.
Recoverable total: £400 + £300 = £700.
Irrecoverable total: £800 + £300 = £1,100.

Answer: Recoverable input VAT is £700 and irrecoverable VAT is £1,100.

Exam tips

In objective tests, read each item for who is being entertained. Clients mean blocked. Staff mean recoverable.
Check whether a vehicle is a car or a van. Vans and lorries are normally recoverable, cars with private use are not.
Look at whether figures are VAT-inclusive or VAT-exclusive before you start. Wrong extraction is a common lost mark.
In written answers, show the reason for each blocked item in a few words. Examiners give marks for the reasoning.
Remember that objective test answers are all or nothing, so do the arithmetic twice.

Practice questions from The computation of VAT liabilities

Input Tax Recovery and Irrecoverable VAT: frequently asked questions

Can I reclaim VAT on client entertainment in the UK?

No. Input VAT on business entertainment of clients and customers is blocked. The VAT becomes part of the cost. Staff-only entertainment is normally recoverable.

Can a business reclaim VAT on a car?

Not if the car has any private use, including home-to-work travel. You can reclaim it in full only if the car is wholly for business use, or is held for resale or as a taxi. VAT on repairs and servicing is recoverable.

How much VAT can I reclaim on a leased car with private use?

You can recover 50% of the VAT on the lease payments. If the car is used only for business, you can recover all of it.

What is irrecoverable VAT?

It is input VAT that cannot be reclaimed from HMRC. It is treated as part of the cost of the item bought. This affects the cost used for other taxes, such as capital allowances.