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VAT
1. How VAT Works
VAT is a tax on business transactions that potentially affects all purchases and sales. It is not a tax on profits. VAT is charged at 20 per cent on most supplies, though some are taxed at either 0 or 5 per cent. There are also some exemptions (see 2).
1.1 Any VAT paid by businesses on their purchases is called 'input VAT'.
1.2 The VAT charged by VAT-registered businesses is called 'output VAT'.
1.3 The difference between the output VAT you charge and the input VAT you can reclaim is handed over to HM Revenue & Customs (HMRC), usually quarterly.
Company ProductSelling PriceClay Co. clay£1 + £0.20 VATPottery Co.vase£10 + £2.00 VATShop Co.vase£30 + £6.00 VATCompanyClay Co. £0.20 less £0.00 = £0.20Pottery Co.£2.00 less £0.20 =£1.80Shop Co.£6.00 less £1.80 =£4.20Total paid to HMRC = £6.00
Labels: Tax
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