Input Tax means Tax paid by a buyer on the purchase of goods and services from a tax registered person or entity. Input tax credit means the amount of tax paid by a buyer that can be adjusted against the output tax (explained below). There is nothing called output tax credit. Input tax can be claimed only if you pay the tax to a VAT registered person/entity.
Output tax means VAT charges on the sale of goods and services by a registered person to another person or entity. In simple terms it is the tax that you may charge to your customers on your invoices to them.
Mr K purchases supplies (inputs) for an amount of AED5000 with a VAT of 5% amounts to AED250 as input tax.
Subsequently Mr K use the supplies to manufacture a product “ Z” and sells them to his customers for AED10000 with a VAT charge of 5% equals to AED500 that is to be paid to FTA. Since Mr K has already paid an amount of AED250 as input tax called input tax credit , he can adjust the AED250 against the payable liability of AED500 and may pay the net AED250 (500 minus 250) to government.
To claim or pay the VAT liability , the invoice may not be necessarily a paid one as the VAT liability is calculated based on the accrual concept but not cash basis.
Note : Tax on certain purchases can’t be adjusted as input tax credit , a list of which is mentioned in FTA’s website. Our professionals can guide you on the same.
Contact Caps Accounting & Book Keeping (capsaccounts.com)