What is output VAT?
Output VAT is the VAT a VAT-registered business charges its customers on sales, which it collects on HMRC's behalf and pays over on its VAT return.
What output VAT means
Once you are VAT registered, you add VAT to the price of your taxable sales. That VAT is output VAT. It does not belong to you: you are collecting it for HMRC. On each VAT return you add up your output VAT, deduct the input VAT you have paid on purchases, and pay the balance.
Most sales are standard rated at 20%. Some are reduced rated at 5%, such as domestic energy, and some are zero rated, such as most food, books and children's clothing. Zero-rated sales carry no output VAT but are still taxable supplies, so you can reclaim input VAT on related costs. Exempt sales are outside this altogether.
Example
A furniture maker's sales for the quarter:
| Sale | Net | VAT rate | Output VAT |
|---|---|---|---|
| Dining tables to customers | £18,000 | 20% | £3,600 |
| Commission for a café | £4,500 | 20% | £900 |
| Furniture exported to the US | £3,000 | 0% | £0 |
| Total | £25,500 | £4,500 |
With £1,700 of input VAT on wood, tools and workshop rent, the business pays HMRC £4,500 − £1,700 = £2,800.
When output VAT is due
Under standard VAT accounting, output VAT is due for the period in which the tax point falls, usually the invoice date. That means you can owe VAT on invoices customers have not yet paid. Under the cash accounting scheme, available to businesses with taxable turnover up to £1.35 million, you account for output VAT only when the customer pays, which helps cash flow.
Why it matters for your business
Output VAT sits in your bank account until the return is due, which makes it easy to spend by mistake. Many businesses move a fifth of every standard-rated receipt into a separate tax account so the money is ready. Mistakes in output VAT, such as using the wrong rate or forgetting VAT on a sale, are among the most common errors HMRC finds.
If you are close to the £90,000 registration threshold, track your rolling 12-month turnover carefully, because once you register every sale must include output VAT. See VAT threshold.
Issuing VAT invoices promptly also helps, because customers who reclaim VAT tend to pay sooner.
Common questions
Yes. If you are VAT registered, you charge VAT on taxable sales to everyone, whether the customer is a business or a consumer. Only your customer's ability to reclaim it differs. Consumers simply pay the VAT-inclusive price as part of the cost.
Output VAT is what you charge customers on sales. Input VAT is what you pay suppliers on purchases. You pay HMRC output VAT minus input VAT, or receive a refund if input VAT is higher.