Pay taxes on products or services according to vat act 1994

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 made in the UK.

The 1994 VAT act explains the meaning of value added tax on services and goods, specifies applications and exclusions for this tax as well as puts down a system of collecting and paying those taxes to Her Majesty?s Revenue and Customs Department or the hmrc. The act specifies that goods that are imported into the UK with the objective of selling them again are governed by vat. This tax is slotted in 3 different vat rates. Although the vat act was established in 1994, the vat rates have changed through the years. Several eu countries such as Germany, Sweden, Spain, Poland, Italy, Greece, etc have also implemented their very 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 in 2010 was 17.5% but is set to increase to 20% from January 4, 2011. The lower vat rate is 5% and then there are also certain goods and services associated with foods, children, hospitals, etc that attract zero vat rate or are vat exempt. The vat act 1994 also specifies how a trader in the United Kingdom can join the vat system by turning 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 a vat invoice and the details which a vat registered trader would need to incorporate within that invoice. A trader will have to display the vat number, vat rate and total vat amount in each vat invoice. The trader must also file vat returns at the intervals specified by hmrc vat. The beauty of vat is when any trader has imported services or goods to the UK after paying vat on the 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 dependant on their interpretation of the vat act. Even though the language might be different, most rules are still 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 is issued in the Polish language. Most traders do wind up hiring vat agents who have a thorough knowledge on eu vat and uk vat rules along with complete understanding of the vat act as well as 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 UK. Several other countries too have recently switched to vat as a way of collecting taxes on goods and services. In the UK, however, traders have to pay taxes on services and goods according to vat act 1994 while also paying heed to regular alterations in the act.