VAT

Value Added Tax & HMRC

Value Added Tax (VAT) is defined as a tax which is applied to every sale transaction. However, where the seller is not the end-user of the product but is an intermediate link in the supply chain, he can reclaim the VAT which he himself paid on the product or the components of this. This means that overall the total tax paid is equal to a percentage of the increase in value from initial production of raw materials, through manufacture, to sale. The current standard rate of VAT is 20%.

For example, a retailer might buy a product for £100 and will pay tax of £20, and he may offer this product for sale to the public at £120. A consumer pays the full price plus £24 tax. The retailer then claims back the £20 tax which he has paid as this is a cost which he has incurred in the course of this business.

Liability

Sometimes businesses can get involved in disputes with HMRC about whether VAT is payable on goods and services and at which rate. This is often the case where the transactions concerned relate to land and buildings. In these circumstances it may be necessary to take a case to court and this can be an extremely complicated and involved process which requires the services of a solicitor or barrister specialising in tax matters.

Questions of liability for VAT can also be an issue which results in a dispute with the other party to a contract - especially in cross border transactions where goods and services are supplied to a third party resident in a country where VAT is not charged, or even in another EU member state.

Administration

Value Added Tax is one of the most complicated and technical areas of revenue law and the systems and processes by which it is calculated, collected and audited can be confusing and bureaucratic. However, there is little room for error as non-compliance could result in severe financial penalties for the business concerned. Claiming refunds and rebates on VAT can be a time consuming process and specialist tax advice can help to expedite this.