ATXP6 UK
Syllabus A6. Value Added Tax A6a. Computation of VAT liabilities

A6a. Calculate the amount of VAT payable/recoverable

Syllabus A6a)

The computation of VAT liabilities

VAT payable/recoverable

VAT on standard rated supplies is 20%

Therefore, if an item is standard rated and VAT inclusive, then its total amount will be 100% + 20% = 120%.

  • To find the VAT element alone:

    VAT inclusive price * 20/120 = VAT element 

    Or

    VAT inclusive price * 1/6 = VAT element

  • VAT paid on standard rated purchases is called “input VAT” and can be claimed from the government. 

    VAT charged on standard rated sales is called “output VAT” and must be paid to the government. 

    The net of these 2 amounts will actually be payable/receivable from the government.

Illustration:

Mr. Mohan is self employed and has made standard rated sales of £120 (VAT inclusive) in
February 2018 and has standard rated purchases of £60 (Vat inclusive) from a VAT
registered supplier.

  • What is Mr. Mohan’s VAT payable/recoverable?

Solution:

Output VAT: 20/120 * £120 = £20
Input VAT: 20/120 * 60 = (£10) 

Net output VAT payable = £10