VAT: output, input and payable

How VAT works: excluding and including tax, French rates, output and input VAT, the payable balance or credit, and neutrality for the company.

The outline, topic by topic

Each topic is weighted the way the exam weighs it.

Excluding and including VAT: what is it?
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Two ways to state a price: without value added tax, or with it; the second is the first multiplied by 1 plus the rate.
At 20%, 100 € excl. VAT is 120 € incl. VAT. In reverse you divide: 240 € incl. VAT is 240 ÷ 1.2 = 200 € excl., not 240 × 0.8 = 192.
A company invoices 1,200 € incl. VAT at 20%. How much of that sum belongs to it?
- 1,000 €; the 200 € of VAT is owed to the State
- 960 €, i.e. 1,200 € less 20%
- 1,200 €; VAT is a cost borne by the customer
- 800 €; a third of the invoice is paid over
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1,000 €; the 200 € of VAT is owed to the State
1,200 ÷ 1.2 = 1,000 € excl. VAT. The company collects 200 € on behalf of the State. Subtracting 20% from 1,200 € would give 960 €, but 20% applies to the pre-tax price.
VAT payable equals … VAT minus … VAT.
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VAT payable equals output VAT minus input VAT.
If the result is negative, it is a VAT credit. In both cases, VAT never goes through the income statement.
Output VAT: what is it?
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The VAT the company charges its customers on its sales, which it collects on behalf of the State.
It is credited to account 44571: it is a debt to the State, not revenue.