Business, Legal & Accounting Glossary
The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services.
Value Added Tax (VAT) is a charge on the taxable supplies of goods and services made in the UK by a taxable person in the course or furtherance of a business.
Where appropriate, a trader adds VAT to sales and must account to HMRC for the output tax.
The input tax paid on purchases can be deducted from the output tax due.
VAT, indirect taxation that falls on the final customer, was introduced in 1973 when the UK joined the European Economic Community (ECC).
Unless they are zero-rated goods and services, exempt supplies or special rates goods, all goods and services in the UK are currently taxed at a rate of 20%.
A value-added tax is sometimes referred to as VAT. A value-added tax is added to the price of a product at each stage of its manufacture or distribution. As more “value” is added to a product, value-added tax, based on a percentage of the increased value, is paid. For example, a log would be subject to value-added tax based on the price paid by the lumber mill. Finished lumber made from the wood has the value-added tax applied based on the added cost of milling. A table fabricated from that lumber would have more added value and another percentage of value-added tax. The difference between the cost of the lumber and the table would be subject to the value-added tax. The value-added tax might be applied to services such as a doctor’s fee. Value-added tax could also be paid on the electricity distributed by a utility company. Ultimately, a value-added tax is a sales tax that is paid by the end consumer of the good or service.
A value-added tax (VAT) is a tax levied on the purchase of goods and services. The value added to a product is calculated at each stage of production, and the tax is levied based on a percentage of this increase in value. The value-added tax is collected at the point of sale to the final customer; anyone involved in the manufacturing process does not have to pay the tax. Some goods may be exempt from VAT in order for consumers to pay a lower price; this is typically done for essential goods that are required by low-income people. Nonetheless, because the VAT is based on the amount of consumption, the tax burden falls disproportionately on lower-income people who must spend a greater proportion of their income on necessities.
The VAT is used by the European Union and many other countries because it is difficult for anyone to avoid paying the tax. As a result, when the value-added tax is used, tax revenue tends to be higher.
The tax is not levied on export sales, which encourages producers to export goods. Foreign customers can usually apply for a refund of any VAT they have paid.
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This glossary post was last updated: 10th August, 2022 | 0 Views.