Pay taxes on goods and services according to vat act 1994

Even though the United Kingdom adopted the practice of vat or value added tax in 1973, the country?s traders now pay taxes on goods and services according to vat act 1994. The act puts several vat rules and regulations into place for efficient tax collection on taxable sales made in the United Kingdom.

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 hmrc. The act specifies that products which are imported to the UK with the objective of selling them again are subject to vat. This tax is slotted in 3 different vat rates. Even though 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 United Kingdom are broadly within 3 slabs. The regular vat rate in 2010 was 17.5% but is all set to raise to 20% from January 4, 2011. The lower vat rates are 5% and then there are also certain goods and services related to foods, children, hospitals, etc that attract zero vat rate or are vat exempt. The vat act 1994 also specifies on how a trader in the UK 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 the vat invoice and also the details which a vat registered trader needs to incorporate within that invoice. A trader will need to display the vat number, vat rate and total vat amount in each vat invoice. The trader must also file vat returns in the intervals specified by hmrc vat. The beauty of vat is that if any trader has imported goods or services into 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 based on their interpretation of the vat act. Although the language might be different, most rules are the same. For instance, traders in Poland need to issue a faktura invoice, which is same as 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 knowledge of the vat act and its amendments so as to efficiently calculate and pay vat, file returns and claim vat refunds.

The vat act was introduced to lay down the provisions of following the system of vat in the United Kingdom. A number of other countries too have now switched to vat as a way of collecting taxes on goods and services. In the UK, however, traders need to pay taxes on services and goods as per vat act 1994 while also paying heed to regular alterations in the act.