Output VAT is the VAT due on the taxable supplies a VAT-registered business makes, which in practice is mainly the VAT it charges on its sales. It is declared in Box 1 of the VAT return. You then deduct your input VAT (the VAT on your business costs) and pay HMRC the difference. Output VAT is calculated at 20% (standard rate), 5% (reduced rate) or 0% of the VAT-exclusive value, and it is due for the VAT period in which the tax point falls, whether or not the customer has paid you yet.
Where the term comes from
Section 24(2) of the VAT Act 1994 defines output tax as VAT on supplies a taxable person makes. HMRC's VAT guide (Notice 700) puts it slightly more widely: output tax is the VAT due on your taxable supplies, and it is "also due in certain other circumstances". Those other circumstances matter, because output VAT can arise when no invoice is raised and no money changes hands (see below).
How to calculate it
Normally you set a price excluding VAT and add VAT at the correct rate. Where a price already includes VAT, you extract the VAT using the VAT fraction: the rate divided by (100 + the rate).
- Standard rate (20%). VAT fraction 20/120, or one-sixth. On a £240 VAT-inclusive sale, output VAT is £40;
- Reduced rate (5%). VAT fraction 5/105, or one twenty-first. On a £210 VAT-inclusive sale, output VAT is £10;
- Zero rate. No output VAT, but the sale is still taxable and still goes in the value boxes of the return.
A common mistake is to take 20% of the VAT-inclusive figure. On £240 that gives £48, overstating the VAT by £8.
When output VAT is due: the tax point
You account for output VAT in the period in which the tax point (time of supply) falls, at the rate in force at that time. Under section 6 of the VAT Act 1994:
- Basic tax point for goods. Usually when they are sent to or taken away by the customer;
- Basic tax point for services. When the service is performed, normally taken as when all the work except invoicing is complete;
- Earlier invoice or payment. If you issue a VAT invoice or receive payment before the basic tax point, the earlier date becomes the tax point for the amount invoiced or received;
- The 14-day rule. If you issue a VAT invoice within 14 days after the basic tax point, the invoice date becomes the tax point, unless you have told HMRC in writing that you do not want this rule to apply.
A tax point is created only when an invoice is issued, by sending or giving it to the customer. Preparing a draft does not count. Under the Cash Accounting Scheme, output VAT follows the cash instead, so Box 1 is based on payments received rather than invoices issued.
Output VAT you might not expect
HMRC's notice on completing the VAT return (Notice 700/12) lists items that belong in Box 1 beyond ordinary sales:
- Private fuel. Fuel used for private motoring where you account using the fuel scale charge;
- Sales of stock and assets. For example, selling an old van or office equipment;
- Goods taken for private use. Including business goods given or lent to someone outside the business;
- Gifts. Gifts of goods that cost you more than £50, excluding VAT;
- Supplies to staff. Goods or services you supply to your employees;
- Reverse charge. VAT you account for on certain purchases on your supplier's behalf, which you normally also reclaim in Box 4;
- Commission. Commission received for selling something on someone else's behalf;
- Self-billing. VAT shown on self-billed invoices your customer issues.
Two further rules from Notice 700/12: deduct VAT on credit notes you issue, and where you take something in part-exchange, account for VAT on the full value of the goods, not just the cash received.
Worked example
Illustration only. A furniture maker on quarterly returns ending 30 June makes these supplies:
| Transaction | Output VAT |
|---|---|
| Tables delivered 24 June, invoiced 3 July for £10,000 plus VAT | £2,000 (tax point 3 July, next quarter) |
| Chairs delivered 10 June, invoiced 12 June for £6,000 plus VAT | £1,200 (this quarter) |
| Deposit of £1,800 including VAT received 28 June for a September order | £300 (one-sixth of £1,800, this quarter) |
| Old workshop saw sold for £600 plus VAT | £120 (this quarter) |
Box 1 for the June quarter is £1,620. The tables fall into the September quarter because the invoice was issued within 14 days of delivery. Had the invoice gone out on 20 July, more than 14 days later, the tax point would have stayed at 24 June and the £2,000 would belong in the June quarter.
The definitions are in sections 24 and 6 of the VAT Act 1994. HMRC's guidance is in VAT guide (Notice 700), sections 7, 8, 9 and 14, and Notice 700/12. For the recovery side, see our guide to input VAT, and for private fuel, the VAT road fuel scale charge.
If you want a second pair of eyes on how your tax points and Box 1 are worked out, our VAT returns service prepares and checks returns each period, and a VAT health check reviews past periods for errors.