Definition
Output VAT is the VAT a business charges on its sales, and input VAT is the VAT it pays on its purchases; the difference is what it pays to, or reclaims from, the tax authority.
Input and output VAT meaning on a VAT return
Keeping them in separate ledger accounts makes the VAT return straightforward: output VAT for the period, minus recoverable input VAT, equals VAT payable. Input VAT can usually be recovered only with a valid tax invoice and for purchases used in taxable business, and some categories are blocked under local rules.
One quarter for a distributor
Example- Output VAT charged on sales
- SAR 90,000
- Input VAT paid on stock and services
- SAR 62,000
VAT payable to the tax authority
SAR 28,000
If input VAT is higher than output VAT, the business can claim a refund or carry the credit forward. See VAT for how the tax works overall.