Value Added Tax Act 1994, section 26

Input tax allowable under section 25

Part I The charge to tax

(1)F192The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies ... and importations in the period) as is allowable by or under regulations as being attributable to supplies within subsection (2) below.

(2)The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business—

(a)taxable supplies;

(b)supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom;

(c)such other supplies outside the United Kingdom and such exempt supplies as the Treasury may by order specify for the purposes of this subsection.

(3)The Commissioners shall make regulations for securing a fair and reasonable attribution of input tax to supplies within subsection (2) above, and any such regulations may provide for—

(a)determining a proportion by reference to which input tax for any prescribed accounting period is to be provisionally attributed to those supplies;

(b)adjusting, in accordance with a proportion determined in like manner for any longer period comprising two or more prescribed accounting periods or parts thereof, the provisional attribution for any of those periods;

(c)the making of payments in respect of input tax, by the Commissioners to a taxable person (or a person who has been a taxable person) or by a taxable person (or a person who has been a taxable person) to the Commissioners, in cases where events prove inaccurate an estimate on the basis of which an attribution was made; and

(d)preventing input tax on a supply which, under or by virtue of any provision of this Act, a person makes to himself from being allowable as attributable to that supply.

(4)Regulations under subsection (3) above may make different provision for different circumstances and, in particular (but without prejudice to the generality of that subsection) for different descriptions of goods or services; and may contain such incidental [F193, supplementary, consequential and transitionalF193] provisions as appear to the Commissioners necessary or expedient.

Definitions used in section 26 9

input tax

“input tax” has the meaning given by section 24;

Defined in s.96(1) · see it in the full Act
taxable person

“taxable person” means a person who is a taxable person under section 3;

Defined in s.96(1) · see it in the full Act
the credit

(4A) Subsection (3) above shall not require any such amount as is mentioned in paragraph (a) of that subsection (“the credit”) to be set against any such sum as is mentioned in paragraph (b) of that subsection (“the debit”) in any case where—

(a)an insolvency procedure has been applied to the person entitled to the credit;

(b)the credit became due after that procedure was so applied; and

(c)the liability to pay the debit either arose before that procedure was so applied or (having arisen afterwards) relates to, or to matters occurring in the course of, the carrying on of any business at times before the procedure was so applied.

Defined in s.81(4A) · see it in the full Act
regulations

“regulations” means regulations made by the Commissioners under this Act;

Defined in s.96(1) · see it in the full Act
business

(1) In this Act “business” includes any trade, profession or vocation.

Defined in s.94(1) · see it in the full Act
taxable supply

“taxable supply” has the meaning given by section 4(2);

Defined in s.96(1) · see it in the full Act
the Commissioners

“the Commissioners” means the Commissioners of Customs and Excise;

Defined in s.96(1) · see it in the full Act
prescribed accounting periods

account for and pay VAT by reference to such periods (in this Act referred to as “prescribed accounting periods”) at such time and in such manner as may be determined by or under regulations and regulations may make different provision for different circumstances.

Defined in s.25(1) · see it in the full Act
prescribed accounting period

“prescribed accounting period” has the meaning given by section 25(1);

Defined in s.96(1) · see it in the full Act

Cases considering section 26 42

Hippodrome Casino Ltd v The Commissioners for HMRC

[2025] EWCA Civ 1259 · 6 October 2025Defines

Section 26(1) attributes the credit to input tax attributable to supplies within section 26(2). (see paras [16],[92]) Section 26(2) identifies the categories of supplies to which attributable input tax may be credited. (see paras [16],[92]) Section 26(2)(a) includes taxable supplies within the supplies attracting attributable input-tax credit. (see paras [16],[92]) Section 26(3) authorises regulations securing fair and reasonable attribution of input tax to taxable supplies. (see paras [16],[92])

The Rank Group Plc v Revenue And Customs

[2020] EWCA Civ 550 · 24 April 2020Limits

Input tax is allowable only to the extent attributable to taxable supplies. The court contrasted that ordinary rule with exempt supplies, for which the relevant input tax was not deductible. (see paras [8], [15]) The court treated input tax for the relevant period as part of the ordinary period calculation and distinguished it from the repayment of output tax wrongly accounted for. (see paras [8], [14]-[15]) The court relied on the restriction of allowable input tax to supplies within the statutory category, explaining why exempt bingo supplies generated no deductible input tax. (see paras [8], [15])

Butt v Revenue And Customs

[2019] EWCA Civ 554 · 3 April 2019Interprets

The input-tax entitlement in section 26 was read with the Kittel principle. A taxpayer knowingly participating in MTIC fraud did not satisfy the objective conditions for deduction despite formal invoices and supplies. (see paras [8]; [15]; [39]-[42])

22 more judgments, and what each says about section 26, are in the case-law panel in the full Act.

Amendments and notes

3 notes from legislation.gov.uk

Amendments

  1. F192Word in s. 26(1) omitted (31.12.2020) by virtue of Taxation (Cross-border Trade) Act 2018 (c. 22), s. 57(3), Sch. 8 para. 26 (with Sch. 8 para. 99) (with savings and transitional provisions in S.I. 2019/105 (as amended by S.I. 2020/1495, regs. 1(2), 21), S.I. 2020/1545, Pt. 4 and 2020 c. 26, Sch. 2 para. 7(7)-(9)); S.I. 2020/1642, reg. 4(b) (with reg. 7) this amendment is subject to savings and/or transitional provisions, see the commentary.
  2. F193Words in s. 26(4) substituted (16.12.2010) by Finance (No. 3) Act 2010 (c. 33), Sch. 8 para. 2

Modifications

  1. C25S. 26 excluded (27.7.1999) by 1999 c. 16, s. 13(1)