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Output tax

Also called: Output VAT

What is output tax?

Output tax is the VAT a business charges on its sales.

The business collects it from its customers and owes it to HMRC.

At the end of each VAT period the input tax is set against the output tax, and only the difference is paid.

Example

In one VAT period a shop charges £900.00 of VAT on its sales and pays £550.00 of VAT on its purchases. Its output tax is £900.00. It pays HMRC the difference, £350.00.

Why it matters

In the books a sale is posted net. The output tax is credited to the VAT account, because it is owed to HMRC.

Practise it

  1. 1Output tax and input tax: which is which?10 min, easyFree
  2. Charging VAT10 min, easyPremium
  3. Posting VAT12 min, mediumPremium
Practise it nowOutput tax and input tax: which is which?

Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].