The VAT a business incurs on running costs is called input tax. For most businesses this is reclaimed on VAT returns from HMRC if it relates to standard rated, reduced rated, zero rated or certain outside the scope sales that a business makes.
However, a business which makes exempt sales may not be in a position to recover all of the input tax which it incurred. This is because input tax which relates to exempt supplies is generally irrecoverable.
Source: marcusward.co
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