Although the United Kingdom adopted the method of vat or value added tax in 1973, the country?s traders now pay taxes on goods and services as per vat act 1994. The act puts several vat rules and regulations into place for efficient tax collection on taxable sales created in the UK.
The 1994 VAT act explains the meaning of value added tax on services and goods, specifies applications and exclusions just for this tax as well as puts down a process of collecting and paying those taxes to Her Majesty?s Revenue and Customs Department or hmrc. The act specifies that vatcontrol.com/vat goods that are imported to the UK with the objective of selling them again are governed by vat. This tax is slotted in 3 different vat rates. Even though the vat act was established in 1994, the vat rates have changed over the years. Several eu countries like Germany, Sweden, Spain, Poland, Italy, Greece, etc have implemented their own version of the vat act which is quite similar in principle, although their vat rates too differ in accordance with their classifications.
Vat rates in the UK are broadly based in 3 slabs. The regular vat rate in 2010 was 17.5% but is set to raise to 20% from January 4, 2011. The lower vat rates are 5% and there are usually certain services and goods related to foods, children, hospitals, etc that attract zero vat rate or are vat exempt. The vat act 1994 also specifies on how a trader in the UK can join the vat system by changing into a vat registered trader. Currently, once a trader achieves a vat threshold limit of ?70K in taxable sales then that trader can apply for vat registration, although that move can be done before reaching the limit too.
The vat act also specifies the format of the vat invoice and the details that a vat registered trader needs to incorporate within that invoice. A trader will need to display the vat number, vat rate and total vat amount in each vat invoice. The trader will also need to file vat returns in the intervals specified by hmrc vat. The good thing about vat is that if any trader has imported services or goods into the UK after paying vat on the very same in another eu country then that vat amount can be claimed back with an appropriate vat refund application.
Each eu country has similar rules based on their interpretation of the vat act. Even though the language might be different, most rules are the same. For example, traders in Poland have to issue a faktura invoice, which is identical to a vat invoice, except that it really is issued in the Polish language. Most traders do end up hiring vat agents who have a comprehensive knowledge on eu vat and uk vat rules as well as complete understanding of the vat act as well as its amendments in order to efficiently calculate and pay vat, file returns and claim vat refunds.
The vat act was brought to lay down the provisions of following the system of vat in the United Kingdom. A number of other countries too have now switched over to vat as an easy way of collecting taxes on services and goods. In the UK, however, traders need to pay taxes on goods and services according to vat act 1994 while paying heed to regular alterations in the act.