What is output and input VAT?
Mirandus Accountants can help businesses with all aspects of Value Added Tax (“VAT”), including the concepts of VAT input and output relevant for trading companies who opt to be VAT registered. Here, we take a closer look at what being VAT registered means for your business.
What is output VAT?
Output VAT is the tax that is calculated and charged on the sale of goods and services from your business, and is relevant only if you are a VAT registered company. The VAT output on sales must be specified in sales invoices, and any other sales document between businesses who sell to each other, including notes, bills and receipts, as well as contract notes and settlement notes.
To confirm, output VAT is calculated and charged on sales to other businesses and consumers alike. You are also required to calculate output VAT when goods or services are withdrawn from your business for private use. If the goods or services are not liable to VAT you will still need to calculate VAT on withdrawals, unless they are considered capital goods, in which case they are considered as an adjustment to input VAT.
What is input VAT?
Input VAT is the tax that is added to the price when goods or services are purchased from other businesses and on those purchases of goods or services that are liable to VAT.
If you purchase goods or services from a VAT registered business, the seller can reclaim VAT on these purchases when completing their quarterly VAT return. When completing a VAT return, the output and input VAT for the tax period under review are considered together to ensure that all good and services that are sold between businesses have been charged VAT correctly. Therefore you can assume that trade activity between VAT registered businesses involves the collection of tax, either by the seller via output tax or via the buyer via input tax, and the VAT registered businesses are vehicles used by HMRC to collect VAT.
An example of output and input VAT in action
During a VAT period, Shop X, a VAT-registered business, purchases goods worth £62,000, inclusive of VAT, which is a 20% rate currently. Therefore, the input VAT is £12,400.
During the same period, the business sells good worth £150,000, excluding VAT. The output VAT is £30,000.
At the end of the VAT period, the output VAT figure is deducted from input VAT figure for the period, which in this case amounts to £17,600.
If the input tax on purchases exceed the output VAT on sales in any given period, the difference will be negative and HMRC will refund this amount.
Mirandus Accountants can help
Here at Mirandus we can assist you in a number of ways:
Tailoring your accounting systems to accurately and quickly bring together VAT information.
Ensuring that your business is VAT efficient
Providing assistance with the completion of VAT returns
Negotiating with HMRC if disagreements arise and in reaching settlement
Advising as to whether any of the available schemes may be appropriate for you such as VAT flat rate scheme.
