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.

Collins Dictionary of Law © W.J. Stewart, 2006
References in periodicals archive ?
What if a person running a lodging business with his/her own house has not filed an application for business registration, or has failed to report or pay value-added tax or income tax?
The shift from a business tax to value-added tax across many industries including transportation and logistics-related services has brought a heavier tax burden to shipping companies amid a sluggish environment for freight rates.
the value-added tax in the total structure of taxes and state duties made up 38.6%.
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Amendment on the Law on Value Added Tax of the Republic of Lithuania concerning the increase of a limit, when a person is obliged to register as a value-added tax payer, has entered into effect from January 1, 2012.
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A value-added tax increase deterred policy makers from fighting the recession.
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Coordinated by the Institute's new European Tax Committee, comments were also submitted to the European Commission on modernization of the value-added tax (VAT) system.

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