What is Value Added Tax?

A value added tax, sometimes called a sales tax, is a kind of indirect tax that is charged on the selling price of a particular product or service to the ultimate end user, usually at every stage of production, distribution or sale. Value-added tax is often referred to as VAT, which means a value-addition tax. For guidance on VAT for your business, consult with Stroud Accountants like https://www.randall-payne.co.uk/services/accountancy/stroud-accountants/

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Many countries across Europe, Asia, Latin America and the United States have a sales tax of some kind. Most countries however use a system of fixed taxes on imports, while others use a progressive system that increases tax rates over time, with some jurisdictions having a hybrid system that allows for taxation of goods as an addendum to the purchase price of a specific good. The most common type of European sales tax is the value added tax or VAT. In many places around the world, local taxes are included in the price of products while they are imported from other countries and this is referred to as the customs fee.

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A business that sells to consumers can be either direct or indirect retailers and if the company has a retail outlet it will be required to register for VAT and pay the tax on all purchases that it makes. A wholesaler, on the other hand, does not carry any inventory and purchases its stock directly from the importer and manufacturer of the goods that it sells. The importer will include the VAT in its invoice of sale along with a corresponding rate for its service charge.

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