Output tax and input tax: which is which?
VAT on your sales is output tax. VAT on your purchases is input tax. See how one is set against the other, and who really pays.
This path is practice in how the records and the sums work. It is not tax advice. Any rate or allowance in a question is an example for that question, so check GOV.UK for the current figures.
In this room: 3 tasks, 10 questions
- Two kinds of VAT4 questions
- What goes to HMRC2 questions
- Who really pays the VAT4 questions
Little Acorns is a shop that sells things for babies and children. It is registered for VAT, so it adds VAT to its prices and passes that VAT on to HMRC.
- Output tax
- the VAT a business charges on its sales
- Input tax
- the VAT a business pays on its purchases and expenses
Output tax is owed to HMRC. Input tax can usually be claimed back from HMRC.
Answer the questions below
3 more questions follow in this task.
At the end of each VAT period, usually three months, the business sets its input tax against its output tax.
- Output tax is more than input tax: the business pays the difference to HMRC
- Input tax is more than output tax: HMRC pays the difference to the business
So HMRC only ever receives, or pays, the difference between the two.
Answer the questions below
1 more question follows in this task.
VAT is collected a little at a time, by each business a product passes through. Each one pays HMRC the VAT on its own sale, less the VAT on what it bought.
| Sale | Net | VAT |
|---|---|---|
| Bramble Toys sells to Little Acorns | 60.00 | 12.00 |
| Little Acorns sells to a customer | 100.00 | 20.00 |
The customer is not a business and cannot claim anything back.
Answer the questions below
3 more questions follow in this task.