Booking the VAT settlement
At the end of the VAT period, input VAT is offset against output VAT. The balance is paid to the tax authority.
How to book it
- 1
VAT payable = output VAT − input VAT.
- 2
Output VAT (a liability) is cleared on the debit side, Input VAT (an asset) on the credit side.
- 3
The balance is paid by bank: credit Bank.
Worked examples
At the end of the VAT period, Output VAT shows £14,542.95 and Input VAT £3,950.79. Offset the input VAT and pay the balance to HMRC (one entry).
Correct journal entry
Output VAT £14,542.95 / Input VAT £3,950.79, Bank £10,592.16
Debit
Output VAT£14,542.95
Credit
Input VAT£3,950.79
Bank£10,592.16
Why?
- Output VAT: liability decreases → debit
- Input VAT: asset decreases → credit
- Bank: asset decreases → credit
Calculation
- VAT payable: £14,542.95 − £3,950.79 = £10,592.16
Your turn
Choose the accounts, enter the amounts and check. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
At the end of the VAT period, Output VAT shows £6,817.74 and Input VAT £4,657.10. Offset the input VAT and pay the balance to HMRC (one entry).
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
All cases on this topic
All transactionsTypical mistakes
- Debiting Input VAT: it is being cleared, so it is credited.
- Paying the whole output VAT without deducting input VAT.
Frequently asked questions
What is the journal entry for the VAT payment?
Debit Output VAT, credit Input VAT and Bank. Example: output VAT £5,000, input VAT £3,200: Output VAT £5,000 / Input VAT £3,200 and Bank £1,800.
What if input VAT is higher?
Then the business gets a refund from the tax authority.