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>either you don't pay it when you purchase and are invoiced by a business

As a business you pay VAT when you purchase. And you collect VAT when you sell. Then you pay to the government the difference between collected VAT and paid VAT. That's what the "Value Added" part means.

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No, if you provide a VAT number, in business to business transactions, companies will not normally charge VAT in the first place, so you don't pay it when you purchase in many cases as a business.

However if you go into something aimed at consumers, and make a purchase, they're normally not set up for this, which is why you're able to reclaim when you have paid it.

This may be an arrangement set up in some jurisdictions and probably widely used nowadays.

The default (as in « the original setup ») is what i’ve described.

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