Hi, I really tried to understand the concepts of the above-mentioned terms but I find it hard to absorb and imagine how they work.
Can someone simplify vat, input tax and output tax? Thank you so much!
In: 5
VAT is charged on the supply of goods and services. People who are carrying out business and who’s turnover exceeds a certain amount in a year must by law register for VAT. So businesses need to charge VAT on the goods they sell to customers, to give it to the government. This VAT they owe to the government is known as their ‘output VAT”. This is the VAT they have charged their customers on sales, their customers have actually paid it for them but they have to give it to the government. “Input VAT” is the VAT this said business can claim on the goods and services they have purchased. Businesses have to complete a “VAT Return”, which is basically the VAT they have charged on sales(output VAT) and the VAT they have been charged on purchases(Input VAT). If they have been charged more than they have charged then they will be due a VAT refund but if they have charged more than they have been charged then they owe X amount of VAT to the government. In short terms Input VAT is deducted from output VAT to calculate VAT liability. To help differentiate them, think OUTPUT, the VAT is going OUT from the businesses profits. For IN think the VAT is going INTO the business, they are being charged it. I hope this helps to clear it up!
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