|Introduction, Basic Principles & Scope Of VAT
| Introduction:· Value added tax is a form of indirect taxation levied throughout the European Union.
· It was introduced in the
Basic principles of VAT
· VAT is a tax on turnover and is added at every stage of manufacture or process, based on the value added at each stage.
· In general, VAT taxes individuals, not businesses. So that while registered businesses must charge VAT to their customers, they may also reclaim (with a few exceptions) any VAT they pay to suppliers. The net amount is paid over to HM Customs and Excise.[ In short, a trader nets the VAT paid on purchases (input tax) against that collected on sales (output tax) and either pays the excess output tax to Customs and Excise or claims a refund if there is an excess of input tax.]
· VAT is therefore generally not a cost to a registered trader. The trader is, in effect, an unpaid tax collector working on behalf of Customs and Excise by collecting the tax due which will eventually be suffered by the final user only. VAT, however, is not reclaimable on a few blocked items
· A trader who is not registered cannot reclaim input tax and as such suffers the full cost of purchases, including the VAT element. This point is of vital importance when deciding the amount on which capital allowances can be claimed. If the trader is registered then the VAT exclusive figure is used. If the trader is not registered then the VAT inclusive figure should be used as the VAT is then a cost to the trader. The term ‘trader’ in this article should be taken to include individuals, partnerships, and companies.
· VAT legislation requires registered businesses to maintain proper records, including copies of invoices on which VAT is charged or payable, and to make regular returns.
· VAT accounting is usually on an accruals basis – that is to say outstanding invoices are taken into account – although again smaller businesses (those with a turnover below £600,000) may by concession account on a ‘cash’ basis (when only VAT amounts actually paid and received are accounted for).
· Smaller unregistered businesses, those making only ‘exempt’ supplies (such as banks) and individuals cannot reclaim or set off any VAT paid – and it becomes a cost to them.
The scope of VAT· VAT is charged on taxable supplies of goods and services made in the
|Others – Registration/Deregistration of VAT
The tax pointThe tax point of each individual supply is the actual deemed date of supply. The tax point is generally the earliest of the date the goods are taken, the invoice date, or the date that cash is received. The tax point is important in determining the period in which the supply is made, the rate of tax to be applied and the category (standard, zero-rated or exempt) to be taken. There is a 14-day rule, which allows the invoice date to be used if this is issued within 14 days of the goods being taken.
|Refer to next topic- Accounting For VAT