Output VAT

What it means

Output VAT is the tax a VAT payer calculates on its own taxable supplies: sales of goods and services and advances received. It adds the tax to the price, collects it from the customer and pays it over in the return, so economically it is borne not by the company but by the final consumer.

It is calculated on the taxable amount, meaning the consideration excluding VAT, at the applicable rate, standard or reduced. What counts is the tax point, usually the day of supply, not the invoice date or the payment date.

Output VAT also arises without a sale, for example under reverse charge on a service from another state, on an acquisition of goods from the EU, on a free supply or on private use of business assets. No output VAT arises on exempt supplies.

How it works in practice

In the return, input VAT is deducted from output VAT. A positive difference is the VAT payable, due by the 25th day after the end of the period; a negative one is an excess deduction.

For advances, output VAT arises on the day the payment is received if it is known what it relates to: this is VAT on advance payments. The final invoice then taxes only the difference, and both parts must be correctly matched in the control statement and the return.

If the taxable amount changes after supply, for example because of a discount or returned goods, a corrective invoice is issued, and a decrease in output VAT is corrected in the period in which the corrective document was delivered. For clients we therefore record the date credit notes were delivered, not just the date they were issued.

What to watch out for

The most common mistake is accounting for the tax by invoice date instead of by the day of supply. When last month’s work is invoiced at the start of the next month, the tax lands in the wrong period, which shows up in the customer’s control statement and leads to a request from the tax office.

The second mistake is the wrong rate. Reduced rates apply only to precisely defined goods and services, and the list has changed in recent years. If a company invoices at a lower rate than it should, it pays the difference itself, because charging it to the customer afterwards is often not possible.