What is output and input VAT?

The VAT People can help businesses with all aspects of VAT, including output tax and input tax related issues. Here, we take a closer look at this concept and what it could mean for your business.

What is output tax?

Output tax is the VAT that is calculated and charged on the sale of goods and services from your business, if you are VAT-registered. This must be calculated on sales to other businesses and consumers alike.

Output VAT must be calculated when goods or services are withdrawn for private use from a registered business. If goods are withdrawn for use that is not liable to VAT under the VAT Act, VAT on withdrawals should be worked out unless the goods in question are capital goods, which fall under the scope of adjustment provisions for input VAT.

What is input tax?

Input VAT is the VAT that is added to the price when goods or services are purchased that are liable to VAT. If the buyer is VAT-registered, and the costs support a VATable activity, they can deduct the amount of VAT paid from his/her settlement with the tax authorities.

How to calculate output and input VAT

For example, during a VAT period, Shop X (which is VAT-registered) purchases goods worth £62,000 excluding VAT with a 20% VAT rate.

The input VAT is £12,400

During the same period, the business sells good worth £150,000, excluding VAT with a 20% VAT rate.

The output VAT is £30,000

On the VAT return, the £12,400 input VAT should be deducted from the £30,000 output VAT, which in this case amounts to £17,600 VAT due to HMRC.

If your VAT on purchases exceed the VAT on sales in any given period, the difference will be negative and refunded to you.

How The VAT People can help

Ensuring your business is compliant with VAT regulations is essential to avoiding penalties from HMRC. The VAT People’s team of expert consultants is on hand to ensure your company is VAT-compliant.

Contact us today by calling 0161 477 6600 or fill out an online enquiry form and we will be in touch at a time that is suitable for you.

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