Jurisdiction(s):
United Kingdom

Key definition

Input tax definition

What does Input tax mean? Input tax is the vat a VAT‑registered business incurs on purchases, imports and certain self‑assessed charges, which it may deduct from its output tax on its VAT return if the costs are used for the business’s taxable activities. In the UK (including the Isle of Man), input tax is defined in legislation: Value Added Tax Act 1994, section 24(1). It covers VAT on supplies to the taxable person, import VAT and (where applicable) VAT on intra‑EU acquisitions, provided the goods or services are used, or to be used, for the purposes of any business carried on or to...

UK VAT: Zero-rating for converters of non-residential buildings—first grants for dwellings and for a relevant residential purpose, conditions, input tax recovery and pitfalls

Published by a LexisNexis Tax expert

Practice notes

This Practice Note considers when VAT zero-rating applies to developers who sell or let non-residential properties they have transformed for residential use—either as dwellings or for a relevant residential purpose.

Why does zero-rating matter?

If zero-rating is unavailable, the supply is generally exempt and the developer is unable to reclaim VAT (ie Input tax) on Costs, for example on the building’s conversion, professional Fees and possibly on buying the property. For further guidance, see Practice Note: When can a person recover VAT? VAT cannot be reclaimed if it ought not to have been charged. Put simply, VAT charged in error is not reclaimable. Care is therefore required throughout projects. Where the project creates a dwelling, the conversion services are commonly taxed at 5%, or are zero-rated where a housing association commissions the work (see Practice Note: VAT treatment of building work). A 20% VAT claim may be disallowed or curtailed, so the developer must ensure these reliefs are fully taken up.

Why might zero-rating not apply?

For conversions to dwellings, the most common reasons are that:

there are planning restrictions on the permitted use of the new dwelling (see below), or
the new dwelling, or part of it, was previously...

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Martin Scammell

Martin Scammell is an independent VAT consultant, specialising in property and construction matters, who works with tax departments in major corporates and universities, and with a number of law and accountancy firms. He is the author of the leading reference work on VAT and property.Martin started out in VAT Policy in Customs & Excise, was a Partner at Ernst & Young, where he headed up the VAT real estate group, and then became head of indirect tax at Eversheds.He has been involved in the development of VAT legislation and policy over many years, and regularly serves on working parties established by HMRC. He was a member of the Office of Tax Simplification’s consultative committee for their review of VAT in 2017, and in 2018-19 of HMRC’s external stakeholder group considering the proposed reverse charge for building work. Martin currently works with HMRC as...

Web page updated on 22/05/2026

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