Pay taxes on products or services according to vat act 1994

Although the UK 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 regulations into place for efficient tax collection on taxable sales created 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 and also 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 to 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 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 based in 3 slabs. The regular vat rate 2010 was 17.5% but is all set to increase to 20% from January 4, 2011. The lower vat rate is 5% and 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 UK can join the vat system by changing 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 also 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 will also need to file vat returns at the intervals specified by hmrc vat. The good thing about vat is when any trader has imported goods or services to the UK after paying vat on the very same in another eu country then that vat amount could 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 instance, traders in Poland have to issue a faktura invoice, which is same as a vat invoice, except that it is issued in the Polish language. Most traders do wind up hiring vat agents that have a thorough knowledge on eu vat and uk vat rules along with complete understanding of the vat act as well as its amendments in order 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 recently switched to vat as a way of collecting taxes on services and goods. In the UK, however, traders have to pay taxes on goods and services according to vat act 1994 while paying heed to regular changes in the act.