What am I to do now that I have collected the VAT?
At the end of the tax period which is the calendar month, you will need to balance your VAT account. This is done by adding all output VAT collected for the period, which will include all debit note issued and all credit notes received to determine the total output tax for that period. This process is repeated to calculate the input tax by adding all input taxes for the period along with all debit notes received and credit notes issued to determine your total input tax for the tax period.
After obtaining your output and input VAT for the period; you apply the VAT equation of Output VAT - Input VAT to determine the VAT payable or refundable. If your output VAT is more than your input VAT you are required to pay the difference to the Inland Revenue Department. If your input tax is more than your output tax then you will have an excess credit. This excess credit will be carried forward for four (4) months as an input tax deduction or until it is exhausted. At the end of the four (4) months period if an excess credit still exists; you can apply to the Comptroller of Inland Revenue Department for a Refund. NB: Taxpayers charging the reduced rate of 10% cannot use a credit to carry forward.
Where the comptroller is satisfied within four (4) months following your claim for a refund or ten (10) days after the completion of an audit, the excess shall be refunded.
Output Tax $5,000.00
Debit Note Issued $100.00
Credit Note Received $200.00
Total Output Tax $5,300.00
Input tax $2,500.00
Debit Note Received $400.00
Credit Note Issued $200.00
Total Input Tax $3,100.00
Vat equation = Output VAT- Input VAT
= $5,300.00 - $3,100.00
Therefore, VAT payable is $2,200.00
VAT debit and credit notes are used for post sales adjustments. A debit note is issued when you undercharge VAT and a credit note is issued when you overcharge VAT. Thus, a debit note is received from your suppliers when you have under paid VAT and a credit note is received when you have overpaid VAT.