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Output tax is the VAT that is due on your taxable supplies. It is also due in certain other circumstances.

This guidance explains the general rules about output tax, including the amount of tax due and tells you about some special rules for particular cases.

It is in three sections:

Section Subject

7 Introduction and tax value

8 Particular situations 9 Business and non-business use

7.2 What is tax value?

The tax value of a supply is the value on which VAT is due. The amount of VAT is the tax value multiplied by the tax rate.

The tax value of a supply depends on what you are given in exchange for the supply. This is called the consideration. A consideration is any form of payment in money or in kind, including anything which is itself a supply.

The consideration for a supply includes any payment that you are given to cover your costs in making the supply, unless you incur the costs as an agent (see Sections 22 to 25).

7.3 What if the consideration is wholly in

money?

If the consideration for a supply is wholly an amount of money, the tax value is based on that amount. The amount paid includes tax. The tax is the VAT fraction of the amount and the rest of the amount is the tax value.

7.3.1 VAT fractions

Tax is normally calculated at the appropriate percentage of a price that has first been decided without VAT, and the VAT invoice will show these separate amounts.

However, sometimes VAT has to be calculated from a price in which it is already included (for example, in the less detailed VAT invoices described in paragraph 16.6.1). To do this, you need the VAT fraction.

For example:

If you sell something at …

And the VAT rate is… Then the amount of VAT is…

£2.40 20% £0.40

However, £0.40 is not 20% of £2.40. It is 1/6 of £2.40. This is how it is worked out: Rate of tax

100 + rate of tax So, with VAT at 20% the VAT fraction is: 20 = 1

120 = 6

The VAT fraction varies according to the rate of tax chargeable. For example:

Rate of tax 5% 8% 10% 12.5

%

15% 17.5 %

VAT Fraction 1 21 2 27 1 11 1 9 3 23 7 47 1 6 1 5

Note: We will publicise the revised VAT fractions at the time of any change in rates, but you can work it out for yourself by using the method set out above.

7.3.2 Discounts

The following rules apply if you offer discounts to your customers. (a) Unconditional discounts

If… And… Then…

you offer a customer an unconditional discount

the customer pays the discounted amount

the tax value is based on the discounted amount. (b) Discounts for prompt payment

If… Then… But…

you offer a discount on condition that the customer pays within a specified time

the tax value is based on the discounted amount even if the customer does not take up your offer.

if your terms allow the customer to pay by

instalments, the tax value is based on the amount the customer actually pays.

(c) Contingent discounts

If… Then…

you offer a discount on condition that something happens later (for example, on condition that the customer buys more from you)

the tax value is based on the full amount paid.

If the customer later earns the discount, the tax value is then reduced and you can adjust the amount of tax by issuing a credit note (see paragraph 18.2).

7.4 What if the consideration is not wholly in

money?

If the consideration for a supply is not in money (as in a barter transaction - see paragraph 8.7) or the consideration is partly in money and partly something else (as in part-exchange), the tax value of the supply is the monetary equivalent of the consideration.

You should normally calculate this by reference to the price, excluding VAT, which a customer would have to pay for the supply if money was the only consideration.

7.5 Other rules about tax value

Some special rules about tax value are explained in sections 8 and 9, regarding specific transactions. See also:

 Notice 725 The single market - for the tax value of intra- Community acquisition of goods; and

 Notice 702 Imports - for the tax value of imported goods.

7.6 Cost of supply

For some types of transaction, explained in paragraphs 8.9.1 and 9.3, you will need to know the cost of a supply.

If the transaction is a supply of…

Then…

Goods cost means what it would cost you to purchase the goods in question at the time of the supply. If no such purchase price can be ascertained then the value is what it would cost to purchase goods similar to, and of the same age and condition as, the goods in question, or, if that cost cannot be ascertained then the value is the cost of producing the goods in question at that time.

Services the cost of the supply is determined by reference to the standard-rated costs of making the deemed supply (see also paragraph 9.3.2).

7.7 Values expressed in a foreign currency

Paragraph 7.7 in this notice has the force of law under the VAT Act 1994, Schedule 6, Paragraph 11.

For VAT purposes, amounts of money must always be expressed in sterling. If you need to convert an amount from a foreign currency into sterling, you must do so on the following basis:

(a) Unless you have adopted one of the alternatives set out below, you must use the UK market selling rate at the time of the supply. The rates published in national newspapers will be acceptable as evidence of the rates at the relevant time; or (b) As an alternative, you may use the period rate of exchange published by HM Revenue & Customs for customs purposes. Our VAT Helpline can give you details of particular period rates. You may adopt this alternative for all your supplies or for all supplies of a particular class or description. If you opt for only a particular class or description, you should make a note of the details in your records at the time of

You do not need to notify us in advance if you wish to adopt this alternative, but having made such an option, you cannot then change it without first getting the agreement of the VAT Written Enquiries Team; or

(c) You may apply in writing to the VAT Written Enquiries Team to use a rate - or method of determining a rate - which you use for commercial purposes but which is not covered by (a) or (b) above.

In considering whether to allow such applications, local VAT offices will take into account:

 whether the proposed rate or method is determined by reference to the UK currency market;

 whether it is objectively verifiable; and

 the frequency with which it is proposed to update it. Forward rates or methods deriving from forward rates are not acceptable.

Whatever rate or method you adopt, the appropriate rate for any supply is that current at the time of the supply.

If you make supplies that fall within the Tour Operators’ Margin Scheme, see Notice 709/5 Tour operators’ margin scheme for details of how to convert the value of your purchases.

7.8 Excise duty

In the case of goods subject to excise duty, the tax value is the value determined according to the principles outlined above in this section, plus the duty.

8. Output tax: particular situations