Input and output VAT

The word output tax mean the VAT which your company would charge on items which it sells. Thus a company could wish to sell an item for £1,000. Added to this amount would be output tax at say standard rate which would be £175 (1000 x 17.5%). The total amount which the company's customer would have to pay would therefore be £1,175. Of this amount, £1, 000 would belong to the company and £175 would be payable to customers and Excise when the next VAT return is prepared and submitted.

Input tax on the other hand is VAT which the company is charged when it makes its purchases. As in the example above, if it was the company which was making the £1,000 purchase, it would be asked to pay an additional £175 VAT. When making its next VAT return the company could deduct £175 from any amounts that it had charged its customers and only pay the difference over to Customs and Excise.