In the UK, as a business, you can reclaim VAT spent on inputs if you charge it on outputs. For example: I buy a Foo for 1200 GBP, 1000 GBP plus 200 GBP VAT I

In the UK, as a business, you can reclaim VAT spent on inputs if you charge it on outputs. For example: I buy a Foo for 1200 GBP, 1000 GBP plus 200 GBP VAT I wiggle it around a bit, improving its' value I sell a WigglyFoo for 1320 GBP, 1100 GBP plus 220 GBP VAT I receive 1320 GBP from the customer, but have to pay 220 of that to the government. So my revenue is 1100 GBP. Subtracting costs I'm at -100 GBP. If you reclaim the 200 in VAT (which really, you should have an invoice for) then you actually make the 100 GBP profit you should get.