VAT

What is VAT?

The UK value added tax (VAT) system is:

1. •

   derived from the Archived Directive 2006/112/EC of the European Parliament and of the Council of 28 November 2006 on the common system of value added tax (the Archived VAT Directive), and

2. •

   mainly set out in the Value Added Tax Act 1994

All other EU member states also have a system of VAT, but this overview is concerned with the way the common system of VAT is implemented in the UK.

VAT is intended to be a tax on consumer expenditure, so that the ultimate burden of the tax is borne by the final user or consumer of goods or services. This is achieved by:

1. •

   requiring each person in a chain of transactions (eg a chain from raw materials producer to manufacturer to packager to retailer):

   1. ◦

      to charge VAT as a percentage of the price charged (including on the final sale to the consumer), and

   2. ◦

      to pay over that VAT to the tax authority (ie HMRC in the UK), and

2. •

   allowing each person in the chain, other than the...