1. Value added tax Chapter 19

2. VAT When you buy goods / services you pay some money to the government. This is called value added tax. The idea is that VAT is paid by the end user (the consumer) so the business does not need to pay this. However, everyone in the supply chain handles VAT. If a business receives more VAT than it has paid, then it must pay the difference to the Government. Sells £100 goods (included 10% VAT. £10 VAT) Sells £500 goods (included 10% VAT. £50 VAT) Therefore, £40 VAT must be paid to the Government.

3. VAT In the UK and most other countries, VAT is not noticed by consumers, as the price tag on goods includes the VAT. So psychologically, consumers believe the price they pay is the total price for the goods. VAT in the UK is 20%, whereas in Thailand it is 7%. It varies from country to country, with some countries having no VAT at all, and other countries having a VAT rate up to 30%! Not all goods and services are subject to VAT. Goods and services deemed necessary for people are not charged VAT, such as healthy food, newspapers and children’s clothing. Business that do not need to pay VAT are called zero-rated businesses. They may have paid VAT when purchasing suppliers. The zero-rated business can claim this money back from the government (VAT refund)

4. Calculating VAT Adding VAT to the basic cost of goods Assuming that the VAT rate is 17.5% and the cost of goods sold is £50… £50 X 17.5 100 = £8.75 Therefore the total purchasing price for the consumer is £58.75

5. Calculating VAT Calculating VAT when it has already been included in the price Assuming that the VAT rate is 17.5% and the cost of goods sold is £50… VAT (£) = VAT % 100 + VAT % X Gross amount For example, the gross amount was £940 and the rate of VAT is 17.5% VAT (£) = 17.5 % 100 + 17.5% X 940 Therefore the VAT is £140. (the NET value of the goods is therefore £800)

6. Vat rateGross priceNet priceVat value 10%£100£90£10 7 139.510.5 15300 45 20235 2734 6 532.9834.02 3953 10134120.6 8222 17.76 17.5 82.517.5 12.598 55653.2 9199 17.91 11 678.1883.82 30444

7. Vat rateGross priceNet priceVat value 10%£100£90£10 7150139.510.5 1530025545 2023518847 2734719.3214.68 6567532.9834.02 3953924.4128.59 10134120.613.4 8222204.2417.76 17.510082.517.5 12.59885.7512.25 55653.22.8 9199181.0917.91 11762678.1883.82 30444310.8133.2

8. Value added tax is the tax levied on sales by the government. Ultimately the tax is paid by the end consumer. The book-keeping entries for recording VAT are shown in a VAT account.