Value Added Tax - VAT

VAT is an indirect expenditure based tax on the consumption of goods and services. It is levied on the added value that results from each exchange. It differs from a sales tax because a sales tax is levied on the total value of the exchange. For this reason, a VAT is neutral with respect to the number of passages that there are between the producer and the final consumer. A VAT is an indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax (namely the seller rather than the consumer). To avoid double taxation on final consumption, exports (which by definition, are consumed abroad) are usually not subject to VAT and VAT charged under such circumstances is usually refundable.

The basic principle of VAT is simple: where goods or services (taxable supplies) are made by a taxable person (most businesses), VAT at 20% (at present – please refer to HMR&C website to verify). VAT is therefore borne by the public, the final purchaser, but collected by businesses on behalf of HMR&C.

An individual or a business making taxable supplies is required to register ofr VAT if the total value of the taxable supplies (i.e. taxable turnover) exceeds a statutory threshold. If the taxable turnover is below this threshold, there is no statutory obligation to register, however voluntary registration is possible.

Click on the VAT link , to find know more of the rules for registration and how VAT affects you and your business venture.