Accounting glossary

Output VAT

What output VAT is, the tax-point rules that determine when it is recognised, and the cash vs accruals scheme distinction for 2026 under MTD.

By ExpenseFlow team
· 18 May 2026

Definition

Output VAT is the VAT a UK business charges on its sales of goods and services. It is collected from customers and paid to HMRC on the quarterly VAT return. The net VAT due for the period is output VAT (on sales) minus input VAT (on purchases). Output VAT exists in every VAT regime and has the equivalent name “output tax” or “GST on sales” in AU, NZ, CA, and SG.

What output VAT means in practice

For a UK bookkeeper, output VAT is the operational counterpart to input VAT: every customer invoice raised generates an output VAT entry, which sits in the output VAT control account until the quarter end. At quarter end, the output VAT control account is the total figure that appears in box 1 of the VAT return.

The mechanics in the clean case are simple: a 6,000 invoice (5,000 net at the 20% standard rate + 1,000 VAT) produces 5,000 of revenue and 1,000 of output VAT. The 1,000 increases the quarter’s VAT liability. The complications come from tax-point rules (when does the output VAT recognise), rate selection (standard 20%, reduced 5%, zero 0%, or exempt), and the cash vs accruals scheme distinction.

A practical example: a UK consultancy with 320,000 of standard-rate revenue in the October-December 2026 quarter. Output VAT at 20% is 64,000. Input VAT on purchases (after blocking client entertainment and motor car VAT) is 10,800. Net VAT due to HMRC: 64,000 minus 10,800 equals 53,200. The return is submitted via MTD-compatible software by 7 February 2027 and the 53,200 is paid by the same deadline by direct debit.

How output VAT works by country

United Kingdom

Output VAT is charged at 20% standard, 5% reduced, or 0% zero rates depending on the supply. The tax point is the earlier of invoice date, payment date, or date of supply. The cash accounting scheme (turnover under 1.35 million) shifts the tax point to payment date for both output and input VAT, which helps cash flow for businesses with slow-paying customers. The annual accounting scheme lets eligible businesses (turnover under 1.35 million) make instalment payments and submit one return per year.

Exempt supplies do not carry output VAT and do not allow input VAT recovery on related costs. Outside-the-scope supplies (statutory fees, fines) are not in the VAT system at all.

Australia

Australia uses “GST on sales” or “output tax” for the equivalent concept under GST. Tax point is the earlier of invoice date or payment date for accruals-basis taxpayers (most businesses above AUD 10 million turnover); payment date for cash-basis taxpayers below the AUD 10 million threshold. Reported on the quarterly or monthly BAS.

New Zealand

New Zealand uses “output tax” under GST. Tax point depends on the invoice basis (mandatory above NZD 2 million turnover) or payments basis (available below). The April 2023 reforms renamed “tax invoice” to “taxable supply information” but left output tax mechanics unchanged.

Canada

Canada uses “GST/HST collected” or “output tax” for the equivalent concept under GST and HST. Tax point is generally the earlier of invoice date or payment date. The HST provinces collect the federal and provincial components in a single line on the customer invoice.

Singapore

Singapore uses “output tax” under GST. Invoice basis only; no cash-basis option exists. The current rate is 9% since 1 January 2024. GST InvoiceNow on the Peppol network becomes mandatory for newly-registered businesses from November 2025 and for all GST-registered businesses from April 2026.

Output VAT is one half of the VAT control account:

  • VAT is the UK indirect tax this concept sits within.
  • Input VAT is the mirror: VAT reclaimed on purchases.
  • A tax invoice is what records the output VAT charged on a sale.
  • Reverse charge VAT shifts the output VAT obligation to the customer for cross-border services and UK construction.
  • MTD requires output VAT records to be kept digitally with digital links to the return.
  • An invoice issued creates an accounts receivable entry that includes the output VAT amount.

See also

For the full UK VAT lifecycle, see the UK VAT and MTD guide.

FAQ

See the answered questions above for tax-point timing, UK VAT rates, and consequences of charging VAT incorrectly.

Questions, answered

Common questions

When is output VAT recognised?

At the tax point: the earlier of invoice date, payment date, or date of supply. For most business-to-business invoicing in the UK, this is the invoice date. For cash-basis VAT scheme businesses, it shifts to the payment date for both output and input VAT. The tax point determines which quarter the output VAT belongs to.

What rates of output VAT exist in the UK?

20% standard (most goods and services), 5% reduced (domestic energy, children's car seats, some renovations), 0% zero rate (most food, children's clothing, books, public transport), and exempt (financial services, residential rent, insurance, education, healthcare, with no output VAT charged and no input VAT recoverable on related costs).

What happens if I charge VAT incorrectly?

If you over-charge: you must refund the excess to the customer (or HMRC if the customer is not contactable) and adjust the next VAT return. If you under-charge: you owe HMRC the shortfall but cannot generally recover it from the customer after the fact unless the invoice is being corrected with a credit note. Both errors are common and HMRC's pattern on small unintentional errors is corrective adjustment rather than penalty.

Keep exploring

VAT (Value Added Tax)

A consumption tax charged on most goods and services in the United Kingdom and the European Union, collected at every stage of the supply ch

Input VAT

The VAT a UK business pays on its purchases of goods and services, which is reclaimed on the VAT return as a reduction of the net VAT payabl

Tax invoice

A formal invoice issued by a GST or VAT registered supplier that contains the specific information the tax authority requires to support an

Reverse charge VAT

A VAT accounting mechanism that shifts the obligation to account for VAT from the supplier to the customer, used in the UK for most B2B serv

MTD (Making Tax Digital)

HMRC's digital tax programme requiring UK businesses to keep accounting records digitally and submit tax returns from functional compatible

Accounts receivable

A current asset on the balance sheet representing money customers owe to the business for goods or services delivered but not yet paid for,

Track output vat without spreadsheets

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