Pay taxes on products or services as per vat act 1994

Although the UK adopted the practice of vat or value added tax in 1973, the country?s traders now pay taxes on goods and services according to 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 and also puts down a system of collecting and paying those taxes to Her Majesty?s Revenue and Customs Department or hmrc. The act specifies that goods that are imported to the UK with the objective of selling them again are subject to 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 according to their classifications.

Vat rates in the UK are broadly within 3 slabs. The standard vat rate 2010 was 17.5% but is all set to increase to 20% from January 4, 2011. The lower vat rates are 5% and then 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 United Kingdom 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 made before reaching the limit too.

The vat act also specifies the format of the vat invoice and the details which a vat registered trader would need 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 at the intervals specified by hmrc vat. The beauty of vat is when 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 could be claimed back through an appropriate vat refund application.

Each eu country has similar rules based on their interpretation of the vat act. Although the language may be different, most rules are the same. For example, traders in Poland need to issue a faktura invoice, which is identical to a vat invoice, with the exception that it really is issued in the Polish language. Most traders do wind up hiring vat agents that have a thorough knowledge on eu vat and uk vat rules as well as complete knowledge of the vat act and its amendments so as 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. Several other countries too have recently switched over to vat as a way of collecting taxes on services and goods. In the United Kingdom, however, traders need to pay taxes on services and goods as per vat act 1994 while also paying heed to regular alterations in the act.