How VAT works in Wafeq

Learn how VAT works in Wafeq, and how to apply the correct tax rates in your invoices, credit notes, bills and expenses.

The basics: Output and Input VAT

Output VAT is the VAT amount that you collect on sales on behalf of the tax authority.

Output VAT example

When you issue an invoice for 1050 inclusive of a VAT tax rate of 5%, Wafeq will record sales for 1000 and will increase the balance of the VAT account by 50.

This means you now owe the tax authority 50.

Input VAT is the VAT amount that you're allowed to claim back on purchases.

Input VAT example

When you receive a bill from a supplier that amounts to 525 inclusive of a VAT tax rate of 5%, Wafeq will record an expense of 500 and will decrease the balance of the VAT account by 25.

The Net VAT payable is your Output VAT minus Input VAT.

How Wafeq books VAT

Wafeq uses a system account called VAT to keep track of your Input and Output VAT. VAT is a liability account, because you will typically owe your tax authority the balance.

Wafeq records Output and Input VAT per tax rate in order to report the VAT amounts in each box of the VAT return.

Type	Tax rate	Taxable amount	Tax amount
Output	Standard-rated VAT (15%)	1,000	150
Output	Zero-rated VAT (0%)	1,500	0
Output	Exempt (0%)	1,000	0
Total Output		3,500	150 (1)
Input	Standard-rated VAT (15%)	-100	-15
Input	Reverse Charge (15%)	-1,000	0
Total Input		-1,100	-15 (2)
Net VAT Payable (1) - (2)			135

The actual VAT Return may look slightly different depending on your tax authority's format. Wafeq will automatically generate the VAT return for you in supported countries.

Do not make manual journal entries to the VAT account

The VAT return is generated using tax rates applied to transactions such as invoices, bills or expenses. Any manual journal you create on the VAT account will not be reflected in the VAT return.