What is input VAT?

Input VAT refers to the value-added tax that a business pays on the purchase of goods and services used for its taxable activities. This tax can be reclaimed by the business from HMRC (Her Majesty's Revenue and Customs) as part of the VAT return process. Therefore, the description of input VAT as the VAT paid on purchases aligns perfectly with option B.

This concept is crucial for businesses because it allows them to offset the VAT they have paid in costs against the VAT they collect on sales, providing a mechanism for businesses to manage their tax obligations effectively. Understanding this process helps businesses maintain cash flow and ensure compliance with tax regulations.

The other options do not accurately define input VAT. VAT charged on goods sold pertains more to output VAT, which is collected from customers. VAT that cannot be reclaimed generally refers to specific situations where input VAT does not qualify for deduction. Lastly, the statement about VAT collected by HMRC from consumers does not relate to input VAT but rather describes the role of HMRC in the VAT collection system.