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What is Output and Input VAT? VAT Returns made easy

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At the end of every quarter, or in some cases, annually, a VAT registered contractor or freelancer must add up all the VAT they’ve charged on sales and then deduct the VAT they’ve paid on business expenses. The information is then included on a VAT return to HMRC.

Accountants often refer to these key elements of the VAT return as Output Tax and Input Tax.

What exactly is Output Tax?

So, you’re a small business owner who’s VAT registered. Therefore, you have to add VAT to your invoices for the services you provide or the goods you sell. The standard rate is 20% of the value of your service or goods. This additional amount you’re adding is known as the Output Tax.

And Input Tax?

When you purchase goods or services for your business, you’ll often be charged VAT. The VAT you’re paying is known as the Input Tax, but it must be for business related expenses only.

Submitting your VAT return to HMRC

Quite simply, your VAT return involves adding up the Output Tax and taking away the Input Tax. If you’ve paid out more VAT than you’ve taken in, you can claim a VAT repayment on your return.

Conversely, if you’ve received more VAT than you’ve paid out, you’ll have to pay the difference.

VAT returns can only be submitted to HMRC online. The best online accounting services (such as Crunch!) make this process incredibly easy, leaving behind the days of VAT returns being a painful struggle.

Don’t forget about Making Tax Digital

From April 2019, HMRC is introducing Making Tax Digital (MTD) for businesses who are registered for VAT. Making Tax Digital introduces a single, seamless process with quarterly updates sent direct from your accounting software to HMRC.

Fortunately, if you’re already a client then Crunch has you covered and you won’t need to do anything differently. But if you’re currently using spreadsheets and paper to calculate your VAT return then submitting online, or you don’t use an MTD ready software solution then you’ll need to change the way you submit your VAT return. If you want to know any more about how Crunch could make your accounting a breeze then give us a call on 0333 363 4829 or request a callback.

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Lucinda Watkinson
Head of Accounting
Updated on
April 9, 2021

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