A VAT is an annual consumption tax
Put on certain goods when value is added in all stages of the supply process, from manufacture to the point of retail sale. The exact amount of VAT that you pay is on the price of the item, less any of these indirect costs of manufacturing that have already been charged. You will be asked when calculating your income for tax purposes how much of this VAT should be added to the price of your sale.
The main reason for putting a VAT on your purchases is to make up for the loss otherwise made by local authorities in collecting additional sales tax from your business. The more you pass on to consumers, the more they will pay on their purchases. By putting a VAT on your purchases, the more your gross margin will be, the higher your turnover will be and you can keep more of your profits. If you are unable to pass on the full retail price of your item, the difference between your standard retail price and the sales price you charge for the item will be profit. This is called the gross margin.
The problem with the UK tax system
Is that most consumers do not realise that they are paying these taxes. By law they are only aware of one set of taxes, which is the income tax system. Because this system is so complex, most people rely heavily on retailers and manufacturers to be honest and provide them with accurate information about the taxes that they pay. The problem is that most businesses and retailers are totally oblivious to the many revenue secrets that govern the way that they pay their taxes, making them vulnerable to criminal prosecution.
By making criminals out of retailers and manufacturers, the tax system is not being administered properly. By making VAT more transparent, it will allow everyone to see exactly what they are paying in taxes. VAT also encourages consumers to shop online, as they will have full knowledge of their total tax liability. If consumers know exactly what they are spending, they will be less inclined to overspend. In fact, if VAT were reduced, there would be an even smaller gap between consumers and producers, resulting in less over-consumption.
fixing all the existing problems surrounding VAT
The European Commission is leading a campaign to have the UK Government to reform its VAT policies. This is because the Commission believes that there are many unfair and inefficient tax practices happening across Europe. By fixing all the existing problems surrounding VAT, the Commission hopes that it will be able to strengthen the UK’s position in the world economy. One of the ways that the Commission is trying to strengthen the UK’s position is by creating a European Standard VAT, which would require all retailers and manufacturers to charge the same rate of tax. The Commission is also urging member states to abolish their own VAT or at least make it easier for customers to understand the tax systems of their countries. The Commission is also urging member states to adopt a procedure called the Single Market Approach, which would mean that all member states would have to operate in the same way.
Many retailers are optimistic about the changes that will result from the Commission’s proposals. With the Single Market approach, retailers will be able to pass on all the costs associated with VAT, including local taxes, through to consumers when they pay for their purchases. By having VAT charged at the same rate across the EU, shops will be able to provide better prices to customers, which should lead to an increase in footfall. If you sell products in other countries, you will be encouraged to apply VAT on your sales taxes, and this should create an extra stream of revenue for you.