What is output VAT?

Definition of output VAT

Output VAT is the amount of Value Added Tax (VAT) that a business charges on sales of goods and services. Businesses that are registered for VAT must add this charge to each VATable sale.

When is output VAT due?

Any output VAT charged by businesses is paid to HMRC at the end of a VAT period, minus any input VAT or other deductions that can be reclaimed.

For example:

A business makes £80,000 in VATable sales over a quarter. The goods are charged at the standard rate of 20% so the business collects £16,000 in VAT (£80,000 x 20%).

During the same period the business pays £50,000 for goods that are also charged at the standard rate of 20%. This means the business has paid £10,000 in input VAT (£50,000 x 20%) over the quarter.

To calculate its VAT liability for the quarter, the business would deduct the amount of input VAT it paid (£10,000) from the amount of output VAT it owed (£16,000) that quarter on its VAT return. In this example, the business’s VAT liability would be £6,000.

If a business pays more in input VAT over a period than it charges in output VAT, it will have a negative VAT liability. If this happens, the difference (the negative amount) can usually be reclaimed from HMRC in the form of a VAT refund.

Find out more about charging and reclaiming VAT in our comprehensive guide.

Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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