How VAT works: collect, subtract, pay

₱144,000 collected. Does it all go to BIR?

From July to September 2026, Kuting Kitchen's customers paid ₱144,000 of value-added tax (VAT) inside the prices of their orders.

Carla's question: does that whole amount go to BIR? No. Only ₱50,400 does. Here's why.

Collect: output VAT on every sale

A VAT-registered seller adds 12% VAT to what it sells. The ₱480 Shopee order is ₱428.57 for the cat food plus ₱51.43 VAT (₱480 ÷ 1.12, invoice KK-SI-000412).

VAT you charge on sales is output VAT. It's the customer's money, held for BIR.

Subtract: input VAT on what you buy

Shopee is VAT-registered too. Its ₱72 fee on that order is ₱64.29 plus ₱7.71 VAT, and Kuting Kitchen paid it.

VAT you pay on purchases for the business is input VAT. You subtract it from your output VAT.

Pay the difference

For this one order: ₱51.43 − ₱7.71 = ₱43.72. That's the VAT Kuting Kitchen owes on it.

Three words carry the whole lesson:

Stock carries VAT too

The cat food supplier delivers stock for ₱6,720: ₱6,000 plus ₱720 VAT, on a proper VAT invoice. That ₱720 is input VAT as well.

Now the tally shows more input than output. Does BIR owe Kuting Kitchen money? No. That's normal partway through a quarter: what counts is the quarter's total.

Start with the Sales VAT

Add every invoice from July to September: sales of ₱1,200,000 before VAT, and 12% of that is ₱144,000 of output VAT.

These totals come from the sales journal, not from the payouts.

Less the Purchase VAT

Purchases came to ₱780,000 before VAT: stock of ₱600,000 and marketplace fees of ₱180,000. Their input VAT is ₱72,000 + ₱21,600 = ₱93,600.

What about VAT on expenses? It counts too: the marketplace fees are an expense, and their VAT is in the ₱93,600. Rent has none here, because the landlord is an individual who isn't VAT-registered.

Every peso of it is backed by a VAT invoice from the supplier or the marketplace.

₱50,400 to BIR

₱144,000 − ₱93,600 = ₱50,400. That's the VAT due for the quarter, reported and paid on the 2550Q by 26 October 2026 (the 25th is a Sunday).

Lesson 4.3 fills in that return line by line.

Why it works this way

Each business in the chain pays VAT only on the value it adds. Kuting Kitchen sold ₱1,200,000 and bought ₱780,000: 12% of the ₱420,000 in between is the same ₱50,400.

And when input VAT is bigger than output VAT, you don't get cash back: the excess carries over to next quarter's return (item 38 of the 2550Q).

Pop Quiz: Ben's quarter

Ben is VAT-registered. This quarter he sold ₱336,000 including VAT, and bought stock and paid marketplace fees of ₱201,600 including VAT, all with VAT invoices.