Glossary
What is input tax?
The tax on what you buy, set against the tax on what you sell. Get it right and you only pay over the difference.
Updated
In short
Input tax is the VAT or GST a registered business pays on its purchases, usually reclaimed by netting it off the output tax it charges on sales. SimpleERP records it on every posted bill and expense and shows it in the tax summary.
Input tax is the VAT or GST a business pays on the goods and services it buys. A registered business usually reclaims it by deducting it from its output tax, the tax it charges customers, and pays the tax authority only the difference. A valid tax invoice is normally needed, and some purchases are blocked from reclaim. Sales tax, as in the United States, generally works differently: tax paid on purchases is a cost.
Input tax: a worked example
Harbour Steel Furniture, a fictional business registered for tax at 20% and trading in US dollars, closes its July to September quarter:
| Line | Value before tax | Tax at 20% |
|---|---|---|
| Sales invoiced (output tax) | $30,000 | $6,000 |
| Purchases and expenses billed (input tax) | $12,000 | $2,400 |
| Net tax to pay | $3,600 |
When can input tax not be reclaimed?
Common cases are purchases without a valid tax invoice, items your country blocks such as some entertainment or private use, and purchases used to make exempt sales. The rules differ by country, so treat this list as the questions to ask your accountant, not the answers.
In India, the same idea is called input tax credit and has its own GST conditions: see input tax credit (India).
FAQ
Questions, answered
What is the difference between input tax and output tax?
Output tax is the tax you charge customers on your sales. Input tax is the tax suppliers charge you on your purchases. A registered business pays the tax authority output tax minus input tax for each period, or claims a refund when input tax is larger.
Can I reclaim input tax if I am not registered?
Usually not. Only a business registered for VAT or GST can reclaim input tax, and only for the period it was registered. An unregistered business treats the tax it pays as part of the cost of what it buys.
Is sales tax reclaimable like VAT?
Generally no. Under a sales tax, as in most of the United States, tax is charged only on the final sale, and tax a business pays on its own purchases is a cost. A business buying goods to resell usually gives the supplier a resale certificate so no tax is charged.
Where do I see input tax in SimpleERP?
In the tax summary report, which shows output tax and input tax by rate for any period and the net to pay, with CSV export. Each posted bill and expense also shows its tax lines, so every figure traces back to a document.
Related
Keep reading
Reverse charge
The buyer accounts for the tax on a purchase instead of the supplier, usually on services from abroad.
Read moreZero-rated and exempt sales
Zero-rated: taxed at 0% with input tax reclaimable. Exempt: no tax and, usually, no reclaim of related input tax.
Read moreTax invoice format
The fields a VAT, GST or sales tax invoice usually carries, how the tax lines are worked out, numbering rules, and a worked invoice to check yours against.
Read more
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