If input VAT exceeds output VAT, what happens?

If input VAT exceeds output VAT, what happens?

• A. A net amount can be reclaimed from HMRC
• B. A net amount is payable to HMRC
• C. VAT is added to sales
• D. VAT is not applicable

Answer: (A)

When there is more input VAT (the VAT you pay on purchases) than output VAT (the VAT you charge on sales), the business has a VAT credit. You can reclaim the difference from HMRC in your VAT return. In other words, a net amount is payable back to you by HMRC, not owed to HMRC. This happens because you’ve effectively paid more VAT on purchases than you’ve collected on sales. The other ideas don’t fit: you wouldn’t pay HMRC the net amount in this situation, VAT isn’t added to sales to create a shortage, and VAT is still applicable even when you’ve paid more on purchases than you’ve charged on sales.

When there is more input VAT (the VAT you pay on purchases) than output VAT (the VAT you charge on sales), the business has a VAT credit. You can reclaim the difference from HMRC in your VAT return. In other words, a net amount is payable back to you by HMRC, not owed to HMRC. This happens because you’ve effectively paid more VAT on purchases than you’ve collected on sales.

The other ideas don’t fit: you wouldn’t pay HMRC the net amount in this situation, VAT isn’t added to sales to create a shortage, and VAT is still applicable even when you’ve paid more on purchases than you’ve charged on sales.