VAT payable: output VAT minus input VAT
VAT payable is the output VAT on sales minus the input VAT on purchases. If input VAT is larger, the business gets a refund.
Updated
How VAT payable works
VAT payable = output VAT − input VAT (negative: VAT refund)
| Net | VAT 20 % | |
|---|---|---|
| Sales in the quarter | £50,000 | £10,000 output VAT |
| Purchases in the quarter | £30,000 | £6,000 input VAT |
| VAT payable | £4,000 |
Journal entries
In the UK output and input VAT usually run through one VAT control account. Sales credit it, purchases debit it, and the balance is what is owed to HMRC.
Paying HMRC: Dr VAT control 4,000 Cr Bank 4,000
At the year end any VAT not yet paid is a current liability; a refund due is a current asset.
Check yourself
Output VAT £4,200, input VAT £5,000. What follows?
More on accounting
Typical exam mistakes
- Treating VAT as an expense: for a VAT-registered business it only passes through.
- Mixing up input VAT (on purchases) and output VAT (on sales).
Your turn
Three transactions from the journal entry trainer: choose the accounts, enter the amounts and check.
Transaction
We buy goods from Evans Ltd for £1,850.00 plus 20% VAT and pay immediately by bank transfer.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
How do you calculate VAT payable?+
Output VAT on sales minus input VAT on purchases for the period, usually a quarter. A positive result is paid to HMRC, a negative one is refunded.