Which components are recorded to determine net VAT payable?

• A. Only output VAT on sales.
• B. Output VAT on sales and input VAT on purchases.
• C. Only input VAT on purchases.
• D. VAT is not used in bookkeeping.

Answer: (B)

The amount you owe in net VAT is found by comparing what you charge in VAT on your sales with what you pay in VAT on your purchases. In bookkeeping terms, you record two figures: output VAT (on sales) and input VAT (on purchases). Net VAT payable = output VAT minus input VAT.

If output VAT is higher, you owe that difference to the tax authority. If input VAT is higher, you’re entitled to a refund or a credit to reduce future payments. For example, charging 1,500 in output VAT and reclaiming 1,200 in input VAT leaves a net payable of 300.

This is why both components are recorded: to show the full picture of what you collect from customers and what you reclaim on purchases, so you can determine the exact amount to pay or reclaim.