value added tax

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value added tax (VAT)

a tax on consumer expenditure collected on business transactions, imports from outside the EU and acquisitions from other EU countries. All EU countries apply VAT in accordance with the Sixth Directive. Many non-EU countries have adopted a tax very similar to VAT, e.g. Mexico, Russia, New Zealand and Australia. The UK law is based upon the Value Added Tax Act 1994, statutory instruments made under that Act and parts of certain VAT notices published by HM Revenue & Customs which are law because of powers given by statutory instrument. The main charge to VAT applies where there is a supply of goods or services in the UK, or the Isle of Man, by a taxable person in the course or furtherance of business and the supply is not specifically exempted. A taxable person is any individual, partnership, company or other entity which is registered for VAT, or ought to be registered because of making taxable supplies above certain value limits. A person who makes taxable supplies below these limits can register voluntarily in order to recover VAT incurred on purchases of goods and services (inputs) related to making those taxable supplies.

There are three rates of VAT: a standard rate, a reduced rate and a zero rate. There is a fundamental distinction between zero-rating and exemption because a business making zero-rated supplies can recover all the related INPUT TAX whereas the VAT incurred on goods and services acquired in order to make exempt supplies cannot be recovered and forms an additional cost to that business. Even businesses which could otherwise reclaim VAT on their inputs cannot normally do so in respect of cars and business entertainment. All taxable persons must keep and preserve records and accounts of all taxable goods and services which they receive or supply in the course of their business, as well as records of any exempt supplies that they make. Such records must normally be kept for six years. There are a range of financial penalties and interest charges to encourage people to register for VAT on time, to send in accurate VAT returns and to make payments on time.

References in periodicals archive ?
The study, conducted by Ernst & Young and the economic research firm Tax Policy Advisors, found that a value-added tax would cause an initial loss of 1.
Tata Motors Limited (Tata) (NYSE : TTM), an India-based automaker, is passing on a four percent cut in India's central value-added tax to its customers.
On June 9, TEI submitted recommendations to the European Commission on modernizing the value-added tax obligations for financial services and insurances.
John Breaux--who has served as vice chairman of the President's Advisory Panel on Federal Tax Reform since its inception in January--said the panel still is examining a number of proposals to craft a "fairer, simpler" tax code, but shifting to a sales or value-added tax wasn't likely to be among the recommendations.
The partnership enables Taxware to serve every level of the business market, while providing Avalara customers with access to Taxware's Value-Added Tax (VAT) rates and "taxability" matrix.
It also discusses the differences between income and consumption taxation and examines the five major consumption tax alternatives [retail sales tax, credit-invoice value-added tax (VAT), subtraction method VAT, "the flat tax" (a single-rate consumption tax), and personal consumption tax].
Value-Added Tax would effect any new real estate developments which would be taxed.
The association, founded in 1998, offers advice on bookkeeping, internal financial controls, risk assessment, employment issues, value-added tax, data protection and tax-efficient giving.
The value-added tax in Europe and state sales taxes in this country prove that consumption taxes can be accepted.
The ECJ had declared, on September 12, 2000, that by failing to subject to value added tax tolls collected for the use of toll roads and toll bridges for the service supplied to users, the United Kingdom was in breach of Article 2 of the Sixth Council Directive 77/388/EEC, which governs the scope of value-added tax (VAT).
Legislators of the Institutional Revolutionary Party (PRI) have criticized some aspects of the proposal, especially the unpopular expansion of the value-added tax, but they haven't rejected the bill outright.

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