---
title: "Input VAT and output VAT"
description: "What input VAT and output VAT are, how a VAT return nets them, how both are recorded in the books, when input VAT is not recoverable and a worked example."
canonical: https://ledgeriano.com/glossary/input-and-output-vat
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Input VAT and output VAT

> What input VAT and output VAT are, how a VAT return nets them, how both are recorded in the books, when input VAT is not recoverable and a worked example.

Output VAT is the tax a VAT-registered business charges its customers on taxable sales. Input VAT is the tax it pays to suppliers on business purchases. For each return period the business pays the tax authority the output VAT minus the recoverable input VAT, or reclaims the difference when input VAT is higher.

In the books, output VAT is credited to a VAT payable account and input VAT is debited to a VAT receivable account; neither touches revenue or expenses, because the business only collects VAT for the government. At the end of each period the two balances are netted into the amount due.

Input VAT is recoverable only on purchases used for taxable supplies and backed by valid tax invoices. VAT on exempt activities or on items the law blocks (often entertainment or passenger cars) becomes part of the cost. Rates and rules differ by country, for example 5% in the UAE and 15% in Saudi Arabia; check them with the [VAT calculator](https://ledgeriano.com/tools/vat-calculator) and your tax authority.

```
VAT payable = Output VAT - Recoverable input VAT
Output VAT = Net sales × VAT rate
```

## Example: a quarterly VAT return at 5%

A trading company in a 5% VAT country sells goods for 300,000 net and buys goods and services for 180,000 net in a quarter. Output VAT is 15,000, recoverable input VAT is 9,000, and the company pays 6,000 to the tax authority.

| Line | Net amount | VAT |
| --- | --- | --- |
| Sales (output VAT) | 300,000 | 15,000 |
| Purchases (input VAT) | 180,000 | 9,000 |
| VAT payable |  | 6,000 |

### Is input VAT an expense?

Not when it is recoverable: it is a receivable from the tax authority. It becomes a cost only when the law does not allow recovery.

### What happens when input VAT exceeds output VAT?

The business has a VAT credit. Depending on local rules it is refunded or carried forward to the next period.