Value Added Tax

Value Added Tax (VAT) is basically a tax on exchanges. It is implied in the added value that comes out from each time an exchange happens. The number of exchanges that happen between the producer and consumer does not affect the value of Value Added Tax.Value Added Tax is categorized as an indirect tax that means it is collected from somebody other then who actually bears it. Value Added Tax was invented in 1954 by a French economist Maurice Laure.

Value Added Tax Calculation Approaches:

Value Added Tax (VAT) can be calculated using following either three approaches.

  • Subtraction Approach - Tax rate equals difference between input cost and output cost.
  • Addition Approach - Tax is calculated as sum of all the payments that applies to the production factor like salaries, wages and others.
  • Tax Credit Approach - Tax Credit Approach involves difference between tax paid on the inputs from tax collected on sales.
Value Added Tax(VAT) Rules :

Value Added Tax rules may differ from country to country or state to state. But everywhere some general basic rules are looked upon.

Value Added Tax Rules comprises of the following -

  • Determination of total turnover and taxable turnover
  • Registration process
  • Cancellation of Registration
  • Payment of security
  • Obligation to provide Invoice for Tax
  • Bills of sale
  • Credit and Debit notes
  • Keeping of Account records
  • Returns
  • Assessments
  • Payments
  • Process for Recovery of Tax
  • Sale of Movable property
  • Sale of immovable property
  • Capital goods scheme
  • Special Accounting Schemes
  • Option to pay
  • Returns and Payments
  • Cancellation of Certificate
  • Appeals and Revisions
  • Inspection of Goods in Transit
  • Rate of Tax
Conditions for Value Added Tax(VAT) Registration:

Whether a Business should apply for Value Added Tax registration depends on different criteria. Some of them are listed below

  • Sales of taxable supplies in past stipulated time period
  • Sales of taxable supplies in coming stipulated time period
  • Relevant acquisitions in past
  • Relevant acquisitions in coming period
  • Exempt suppliers to customers
  • Sector in which business operates
  • Business is in partnership
Apart from the other stated criteria there may be some other possible factors also to decide whether a business should register for Value Added Tax (VAT) registration number.
Value Added Tax(VAT) Registration Number:

Value Added Tax Registration number is a unique number that is provided by governments of different countries under which and individual's business falls. On a general basis Value Added Tax can be applied on a paper basis or an individual can apply online. Acquiring a Value Added Tax registration number after getting all the required documents takes 14 days time following receipt in UK.

A Value Added Tax registration number is permanent and there is no provision for temporary Value Added Tax number or fast tracking the process.

Value Added Tax registration number is sent to the applicant through post on applicants business address as specified in the documents. In case of any delay in getting the Value Added Tax registration number or some errors in the documents or other queries there are different bodies set up by different countries. In UK this body is known as National Advice Service.

Value Added Tax Recovery:

Value Added Tax as some form of other taxes can be refunded or compensated. The entire process to get the Value Added Tax refunded is quite complex in nature and varies from country to country. Thus it requires technical and functional expertise to acquire the refund. AT times the organizations are not even ware of that they can ask for Value Added Tax refunds also. Organization may apply for Value Added Tax refunds for different instances such as service fees travel related expenses business operation costs and many others. Depending on the size of organization the Value Added Tax refunds may vary from a fewer thousand of currency of a country to millions of it and can highly impact the funds flowing in an organization or business.

For this purpose there are different Value Added Tax recovery group across countries to recover Value Added Tax refunds for a business. These recovery groups are responsible for handling the entire Value Added Tax refund process right from identifying what amount can be recovered to the application form and finally acquiring Value Added Tax refunds. Their fees are based on the amount of Value Added Tax recovered that means they generally charge a small percentage of the amount recovered from Value Added Tax and does not have affixed fees apart from this amount. Generally Value Added Tax is refunded 3 to 12 months after the application for same has been given.