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European VAT Creates More Form-Filling For The Business Person

One of the most difficult transactions for business owners is collecting the VAT (Value Added Tax), since they are essentially collecting this tax for the government and then submitting it on its behalf to the Inland Revenue. (In the United Kingdom). Each business is issued a VAT number and is registered with HM Revenue and Customs.

It is a much debated tax, since under VAT additional taxes will be paid by both the customers and the owner of a business. In the case of the business owner the tax is added to the ‘value added’ to the end product, material or service at the end stage of its manufacture or distribution from an accounting view. When products are manufactured from individual parts, every single piece will have a VAT tax applied, and which will be paid for by the buyer of the product.

In these situations, the purchaser will receive an invoice where the seller breaks down the details of the VAT tax on the product, and business owners can deduct this output tax as input costs and deduct it from their personal VAT responsibilities. They will pay directly to the government any difference that is found between the input and output tax calculation, and if there is actually a negative liability in this calculation, they can apply for a refund. Certain companies like those at Tax relaim will arrange the VAT refund paperwork for multiple businesses.

A product’s VAT is determined by calculating the difference between what the customer paid for the product minus all materials and other taxable items used in the production of the product. The value added tax is paid one time, by the purchaser at the end of a completed transaction.

For businesses that are manufacturing products, the VAT must be paid whenever supplies or products are purchased, minus any taxes they may have already paid. If this is confusing to you, you’re won’t be the first. At VAT compliance you’ll find a description of ways to simplify the process.

Any VAT input tax that has already been paid during the manufacturing process by a business owner may be recovered when that product is sold to a customer or another manufacturer. The end result of this process is that the VAT that is charged during each phase of manufacturing remains a constant percentage of the overall value added to the product by the producer at the end of the manufacturing process.

Because the business itself is responsible for calculating and collecting this tax, the costs to the government for maintaining this tax is reduced. This requires a lot of extra accounting responsibilities for business that find themselves in the middle of the manufacturing process, while those businesses who provide services or products where the VAT is not changed will find the entire process to be simpler.

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