VAT Control Accounts Explained: Codes 2200, 2201 & 2202
If you've ever looked at a Sage chart of accounts and wondered why VAT seems to be recorded in three different places, you're not alone. It trips up a lot of people learning bookkeeping, because VAT doesn't behave like a normal expense or income line — it's money the business collects and pays on HMRC's behalf, not its own.
The three codes, and what each one holds
Code 2200 — Sales Tax Control Account holds the VAT the business has charged on its sales. Every time you invoice a VAT-registered sale, the VAT portion lands here as a credit. It's money you've collected on HMRC's behalf, not your own income.
Code 2201 — Purchase Tax Control Account holds the VAT the business has paid on its purchases. This is usually reclaimable, so it works the other way — increasing with a debit each time you record VAT on a supplier invoice.
Code 2202 — VAT Liability is effectively the net of the two: what's charged on sales, less what's reclaimable on purchases. That net figure is what actually gets paid to (or reclaimed from) HMRC.
Real-world examples across industries
Consultancy
A consultancy with high margins and low overheads is almost always in a net payment position: output VAT collected on standard-rated fees usually dwarfs input VAT on modest running costs. A quarter with £24,000 of VAT-registered fees builds a £4,800 credit balance in 2200 (Sales Tax Control Account), while only £900 of input VAT on overheads sits as a debit in 2201 (Purchase Tax Control Account) — the kind of split our VAT calculator is built to check quickly on either side of a transaction. The quarter-end clearing journal is a debit of £4,800 to 2200, a credit of £900 to 2201, and a credit of £3,900 to 2202 (VAT Liability) — the net amount actually due to HMRC.
Bakery or food retailer
A bakery's output VAT is far less predictable relative to turnover than a consultancy's, because most of what it sells — bread, cakes — is zero-rated, while hot food, eat-in items and drinks are standard-rated. A quarter might build only £1,600 of output VAT in 2200 despite substantial total sales, against £700 of input VAT in 2201 on packaging, ingredients and overheads. The clearing journal is a debit of £1,600 to 2200, a credit of £700 to 2201, and a credit of £900 to 2202 — a modest liability that bears little relationship to the shop's actual turnover, unlike the consultancy above where the two move in lockstep.
Exporter
An exporter selling most of its goods to customers outside the UK charges little or no output VAT on those zero-rated sales, but still pays and reclaims input VAT on materials, packaging and UK overheads in full. A quarter with only £400 of output VAT in 2200 against £3,600 of input VAT in 2201 flips the usual pattern entirely: the clearing journal is a debit of £400 to 2200, a credit of £3,600 to 2201, and a debit of £3,200 to 2202 — left as a debit balance representing a refund due from HMRC, rather than a liability owed to it.
Why this matters day to day
Getting comfortable with this split matters because these are liability accounts, not expense or income accounts — VAT charged on a sale never appears in your actual sales income, and VAT paid on a purchase never appears in your actual cost of that purchase. Mixing the two up is one of the more common bookkeeping errors for anyone new to VAT-registered trading.