Output VAT (Output Tax)

How output VAT is worked out

HMRC’s rule is short: “The amount of VAT is the tax value multiplied by the tax rate.” The tax value is the price of the sale before VAT. In EU law it is the taxable amount, which Article 73 of the VAT Directive says includes “everything which constitutes consideration obtained or to be obtained by the supplier.”

When the price already includes VAT, you work backwards with the VAT fraction. HMRC defines it as the “rate of tax divided by (100 + rate of tax),” and gives the example: at 20 percent the fraction is 20/120, which is one-sixth. A sale for 120 GBP including VAT carries 20 GBP of output VAT, not 24.

Stripe makes the same split through the tax behavior on each price. Its documentation says an exclusive price adds tax “to the subtotal amount specified in your price,” while with an inclusive price “the amount your customer pays remains constant, regardless of the tax amount.” Either way, the tax amount on a Stripe invoice is Stripe’s calculation of output VAT for that sale, at the rate it applied.

When output VAT becomes payable

Output VAT belongs to a specific moment. Article 63 of the EU VAT Directive says “the chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.” Article 65 brings it forward for money received in advance: “VAT shall become chargeable on receipt of the payment and on the amount received.” For services billed in installments, Article 64 treats the supply as completed when each period a payment or statement relates to ends.

Chargeable is not the same as paid. Article 62 describes the point at which the tax authority “becomes entitled under the law, at a given moment, to claim the tax,” even though the time of payment “may be deferred.” The VAT becomes owed at the tax point and is paid with the return for that period.

The UK version of these rules, with basic and actual tax points and the 14-day invoice rule, is covered in our tax point entry. For output VAT the practical result is simple: the period your sale is reported in decides which return its output VAT goes on.

Output VAT on sales where you charged no VAT

Forgetting to add VAT does not make the VAT go away. HMRC’s guide treats any sale paid wholly in money as tax-inclusive: “The amount paid includes tax. The tax is the VAT fraction of the amount and the rest of the amount is the tax value.” And its late registration guidance says, “If you register late, you must pay VAT on any sales you’ve made since the date you should have registered.”

Put together, a 120 GBP sale made before you registered carries 20 GBP of output VAT, paid out of the 120 GBP you kept. Your revenue for that sale is 100 GBP, not 120 GBP. Some countries write this rule into the VAT law itself, and our Bahamian VAT guide works through one of them.

The same logic applies when a Stripe product is set up with the wrong tax code or no tax registration in Stripe, so Stripe adds nothing at checkout. The output VAT is still due, and it comes out of the price the customer paid.

Credit notes, refunds and price reductions

Output VAT goes down when the price does. Article 90 of the VAT Directive says that “in the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly,” under conditions each member state sets. Non-payment is the exception: member states may opt out of that part, which is why bad debt relief has its own rules country by country.

HMRC’s conditions are specific. When you issue a credit note you must adjust “your output tax,” and for a decrease in price the adjustment goes in “the accounting period where the refunded amount is paid to the customer.” A credit note is only valid for VAT if it reflects “a genuine mistake or overcharge or an agreed reduction in the value of the supply,” and is issued within 14 days of the refund payment.

Stripe Tax reduces its reported tax when you create a credit note, refund a charge linked to an invoice or Checkout Session, void an invoice or mark it uncollectible. Stripe adds that a credit note “keeps the decrease in place even if the refund fails or is canceled.” A dispute the bank upholds is different: Stripe says it “doesn’t decrease the balance of the collected total tax,” so any adjustment for a lost dispute is yours to work out and make.

Why your output VAT can differ from Stripe’s tax total

Stripe’s figure is the natural starting point for a return, but it is a reporting convention, not the legal number. Stripe says, “We consider transactions effective on the date they finalize and we don’t recalculate taxes afterwards.” Its summarized export splits the result into total_tax_collected, total_tax_refunded and filing_tax_payable, the last being collected minus refunded in the authority’s filing currency.

The differences to look for each period are predictable. Invoices can finalize in one period while the country’s rules put their tax point in another. Disputes upheld by the bank stay in Stripe’s collected tax. Sales made before Stripe was set up to collect tax carry output VAT that Stripe never recorded. And refunds can fall in a different period under the law than the one Stripe reports them in.

Reverse-charged sales are the opposite case. Stripe shows no tax on them, and that is correct for you as the seller: the business customer accounts for the VAT on its own return.

Output VAT in your QuickBooks books

HMRC requires a VAT account, “a summary of the totals of your output tax and input tax” for each period, and says it “is the link (the audit trail) between your business records and your VAT Return.” In QuickBooks that link is the VAT liability account. Output VAT on sales builds it up, input VAT on purchases brings it down, credit notes reduce it, and the payment to the authority clears it.

Three habits keep that account explainable. Post output VAT from the same source you file from, so the account and the return start from one figure. Book manual corrections, such as VAT on sales made before registration, as their own entries with a note, rather than editing old invoices. And at each filing, reconcile the account balance to the return and keep the list of differences, the same list described in the section above, with the return.