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 these concepts, explain the differences between them and discuss what they mean for your business.

What is output tax?

A business's output tax is the Value Added Tax (VAT) that is charged on supplies of goods or services made both to other businesses and consumers alike. There are various VAT rates that can apply to taxable supplies, and indeed some supplies are exempt from VAT altogether. A VAT-registered business will charge and collect VAT on supplies made for business purposes and pay this to HMRC via the submission of VAT returns.

What is input tax?

Input tax is the VAT incurred on the purchase of goods and services that are liable for VAT. If the purchaser is VAT-registered and the costs are incurred in the course of making taxable supplies, Input VAT incurred in the period if offset against output VAT charged during the same period, with the difference due to HMRC. If input VAT exceeds output VAT, the difference is recovered from HMRC.

In order to support recovery of input VAT, evidence must be held to show that this has been incurred – this is generally a valid VAT invoice, or a C79 postponed VAT statement for import VAT.

How to record input VAT

Recording input VAT accurately is essential for businesses registered for VAT in the UK. Proper record-keeping helps ensure your business remains compliant with HMRC requirements and allows you to reclaim the appropriate amount of input VAT.

Before recording input VAT, you should establish whether the relevant expenses directly relate to your VATable sales and are not subject to specific restrictions - examples of non-deductible input VAT include business entertainment expenses and certain types of vehicles.

To reclaim input VAT, you must have a valid VAT invoice from your supplier to evidence your claim. This invoice should include essential information such as the supplier's VAT registration number, the invoice date, a description of the goods or services, and the VAT amount charged. It is crucial to keep these invoices as part of your VAT records for at least six years, as HMRC may request them during an inspection or audit.

Accurately record input VAT in your accounting system, typically using accounting software. It is essential to separate input VAT from the net purchase cost and record it in the appropriate input VAT account. Ensure that your records are clear, well-organised and up-to-date, making it easy to identify and calculate the input VAT you intend to reclaim.

When completing your VAT return, you will need to provide information on both input VAT (the tax you paid on purchases) and output VAT (the tax you collected on sales). The difference between your input and output VAT is either the amount you owe to HMRC or the amount you can reclaim.

On your VAT return, you will report the total input VAT you wish to reclaim. Ensure that the amount recorded is accurate and supported by valid VAT invoices.

As VAT rules and regulations can change over time, it is essential to stay informed and adapt your input VAT recording process accordingly. The VAT People can provide you with regular updates on changes in VAT legislation and offer expert guidance on maintaining compliant record-keeping practices.

Navigating the UK VAT environment

The UK VAT system can be confusing, with numerous rules and regulations to consider. Some of the challenges businesses face include:

• Understanding the different VAT rates and determining which rate to apply on the goods and services your business sells.
• Calculating the correct amount of input VAT to reclaim, ensuring all conditions are met and the appropriate documentation is in place.
• Maintaining accurate VAT records, submitting timely VAT returns, and making payments to HMRC.
• Keeping up to date with any changes in VAT legislation, which can impact your business.

Seeking expert VAT advice

Acting as your in-house VAT consultants, The VAT People can help you navigate the complexities of input and output VAT, ensuring your business remains compliant and avoids any costly mistakes. Our services include:

• Expert advice on input and output VAT, tailored to your business needs.
• Assistance in identifying exemptions, as well as zero-rated and reduced-rated goods and services, to help you minimise your VAT liability.
• Guidance on VAT registration, deregistration and record-keeping requirements.
• Support in dealing with HMRC enquiries, disputes and assessments.
• Updates on changes in VAT legislation and their impact on your business

FAQs

How far back can I claim input VAT?

You can claim back VAT paid on goods or services you purchased before you registered for VAT if they were purchased within:

• The last four years, for goods that you still own and used in the course of making taxable supplies
• The last six months for services

You can only claim back VAT on purchases made for your now-registered business, and they must be relevant to your taxable business activities to be eligible. As such, they must relate to VAT-taxable goods or services you supply.

What happens if my business’s input VAT is greater than output VAT?

If a business’s input VAT is greater than the output VAT it charged over a certain period, the business will be in a repayment position.

In such circumstances, the business can usually claim back the difference from HMRC in the form of a VAT refund.

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. Do not let the complexities of input and output VAT in the UK hold your business back.

Trust the expertise of The VAT People to guide you through the maze of VAT compliance, helping you identify potential savings and ensuring you are always up to date with the latest regulations. To learn more about our VAT services and how we can help your business, get in touch with our team of specialists today.