Tax

What is Output VAT?

Output VAT is the VAT you charge customers on your sales. You collect it from customers and pay it to HMRC.

Current Rate (2025/26)

20% standard rate (usually)

Example

Charge customer £1,000 + £200 VAT = £1,200. The £200 is output VAT you owe HMRC.

Key Dates

Report on your VAT return for the period you issued the invoice

How Output VAT Works in Practice

Output VAT is the Value Added Tax that you, as a VAT-registered business, charge on your sales of goods and services. When you sell a taxable item or service, you add VAT at the appropriate rate to your invoice. The customer pays you the VAT-inclusive amount, and you are then responsible for paying that VAT to HMRC through your VAT return. Output VAT is not your money -- you are acting as a tax collector on behalf of HMRC.

The standard VAT rate is 20%, but some goods and services attract a reduced rate of 5% (for example, domestic energy, child car seats, and some energy-saving materials) or a zero rate of 0% (for example, most food, children's clothing, books, and newspapers). Zero-rated items are technically still taxable -- you must still include them on your VAT return -- but no actual VAT is charged. Exempt supplies (such as financial services, education, and health services) are outside the VAT system entirely and are not included in your output VAT calculations.

You must issue a VAT invoice for every taxable sale to a VAT-registered customer. The invoice must include your VAT registration number, the invoice date and a unique sequential number, your business name and address, the customer's name and address, a description of the goods or services, the quantity, the unit price excluding VAT, the VAT rate for each item, and the total amount including and excluding VAT. For sales under £250, a simplified invoice is acceptable.

The timing of when output VAT becomes due depends on your accounting basis. Under the standard accruals basis, output VAT is due in the period you issue the invoice (or receive payment, whichever is earlier). Under the cash accounting scheme, output VAT is only due when the customer actually pays you, which can significantly help cash flow if your customers are slow payers.

Step by Step

Each time you issue a sales invoice, you calculate the VAT at the appropriate rate and add it to the net amount. Your accounting software records the output VAT separately. At the end of each VAT period, the software totals all output VAT and enters it in Box 1 of your VAT return. Your total sales excluding VAT go in Box 6.

If you sell goods or services at different VAT rates, you must show each rate separately on the invoice and account for each rate correctly. For example, if you sell a software subscription at 20% and a printed manual at 0% (as a book), each line must show the correct rate. The total output VAT is the sum of all VAT at all rates.

For certain supplies, the customer rather than the supplier accounts for the output VAT. This is called the 'reverse charge' and applies to services received from overseas, certain construction services (CIS reverse charge), and some supplies of gas and electricity. In these cases, you do not charge output VAT on your invoice, but the customer includes the equivalent amount as both output VAT and input VAT on their own return.

Practical Tips

Set up your invoicing software to apply the correct VAT rates automatically for different products and services to reduce errors
Remember that output VAT is not your income -- set it aside in a separate account to ensure you can pay your VAT bill on time
Review the VAT liability of new products or services before you start selling them -- getting the rate wrong from the start creates a cumulative problem
If your customers are slow payers, consider the VAT cash accounting scheme so you only pay HMRC the output VAT after you have actually received the money

Common Mistakes to Avoid

Not charging VAT on taxable sales because the customer says they are not VAT-registered -- the customer's VAT status does not affect your obligation to charge VAT
Applying the wrong VAT rate -- for example, charging 20% on items that should be zero-rated, or zero-rating items that are actually standard-rated
Not accounting for output VAT on non-cash transactions such as bartering, staff gifts, or taking stock for personal use
Issuing invoices without sequential numbering or missing mandatory information, which can cause issues during HMRC inspections

Frequently Asked Questions

Do I charge VAT to overseas customers?

For services to business customers outside the UK, the general rule is that no UK VAT is charged (the 'place of supply' is where the customer is based). For goods exported outside the UK, you can zero-rate the supply if you have proof of export. The rules are complex, so check the specific rules for your type of supply.

What if a customer does not pay but I have already declared the output VAT?

If a debt is more than six months old and you have written it off in your accounts, you can reclaim the output VAT as bad debt relief. You must keep records showing when the debt became overdue and when you wrote it off.

Do I charge VAT on deposits?

If the deposit is a payment on account for a future supply, you must account for output VAT when you receive it (under standard accounting) or when you issue the invoice. If the deposit is a security deposit that will be returned, it is not subject to VAT.

What happens if I charge the wrong amount of VAT?

If you overcharged, you must pay the full amount to HMRC and issue a credit note to the customer for the excess. If you undercharged, you are still liable to HMRC for the correct amount. Issue a supplementary invoice for the shortfall.

Source: HMRC VAT Supply and Consideration Manual (VATSC): https://www.gov.uk/hmrc-internal-manuals/vat-supply-and-consideration and VAT Notice 700 Sections 4-7: https://www.gov.uk/guidance/vat-guide-notice-700

Related Terms

Input VAT

Input VAT is the VAT you pay on business purchases. You can usually reclaim this from HMRC on your VAT return.

VAT Return

A VAT return is a regular submission to HMRC showing the VAT you've charged (output VAT) and paid (input VAT), with the difference paid or reclaimed.

VAT (Value Added Tax)

VAT is a tax added to most goods and services sold in the UK. Businesses collect it from customers and pay it to HMRC, minus any VAT they've paid on business purchases.

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