Businesses are often troubled by the term "taxes." The reason behind such troublesome is the variation in the domain. The variations are now occurring frequently, requiring the companies to cope. One such part where different entities find difficulties is Value-added Tax (VAT). The term sounds too ordinary and simple, but once explored, it has too many branches. This article is an attempt to educate businesses about input VAT and output VAT. These terminologies are often mixed up, leaving the concerned authorities in a problem. Read this article to have a clear idea of what the key differences are.
Output VAT, also known as tax payable, is the tax businesses should pay on account of goods or services sold. Since it must be paid to tax authorities periodically, it is known as tax payable. The output VAT is charged and calculated on the invoices you are sending to your customers. Those businesses who are registered for VAT can add this charge to VATable sales.
The output VAT is calculated and charged on the sales of your own goods or services. Be it a business-to-business (B2B) or business-to-customer(B2C) transaction, the VAT will be applied all the same. As a seller party, you need to specify VAT for each item on the invoice you will be sending to your customer. The only condition here is your company must be registered for VAT. In the case of B2B sales, you need to mention the payable VAT on a sales document. The document must be a business document relating to the transaction of the sale of goods and services. It must also include receipts, notes and bills associated with the transaction. In case of a B2C sale, you need to mention the VAT payable on an invoice. Each VATable item will have its respective amount of tax in front. There are some items, however, which are exempted from VAT.
The output VAT is paid to the tax authorities at the end of a VAT period. Good and services are sometimes withdrawn for private use from a registered business. VAT must be calculated for such withdrawals. Companies often find it difficult when to calculate and pay the output VAT. The best way to excel at it is by hiring the best VAT consultancy in Dubai.
Input VAT is the tax that is added to the price of goods and services at the time of purchase. Only those goods and services are VATables which are liable to the tax under the VAT act. If someone is VAT registered, they can deduct the tax amount paid at transaction time during the settlement with tax authorities.
Input VAT is the tax amount paid on the purchase or import of goods by any registered customer. If used in the manufacturing of the taxable supplies, the customer can claim the tax authorities' amount. There are specific ways where customers can claim the input tax. These are:
Sometimes, registered customers make transactions of different nature; each one must be shaped in a way to adjust the input tax. Transactions are:
Make sure that the amount is reclaimed in a particular tax period.
Read Also : Vat treatment of entertainment services in UAE
ii) Adjustment Limit:
There are certain limitations; however, registered customers should take into account. They are not allowed to reclaim an input tax of more than 90% of the output tax for a particular tax period. The remaining amount will be reclaimed in the preceding month of the next financial year.
There is one exception; however, businesses need to consider. We discussed the adjustment of input tax for goods and services concerning their usage in taxable supplies. What if the goods or services are not used in the manufacturing of taxable supplies? Well, the input tax will not be adjusted in that case.
Exceptions like these are often overlooked by many businesses, creating problems at the time of tax paying. To better handle such cases, companies need to take the best VAT consultancy in Dubai. An expert eye will keep things in line, avoiding any mishaps relating to tax issues.
Tax is a going concern, and businesses cant do away with this by mere timely strategies. To ensure best practices, companies need to get in touch with tax professionals. Their approach and management are enough to keep your business compliant. Reach them out to streamline your business activities.
Read Also: