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What is VAT?

Definition: An acronym standing for value added tax. It is a tax surcharge in addition to the retail price of a good or service.

Where VAT is applicable

In the United Kingdom and the European Union, VAT is a tax that a consumer pays when they purchase goods and services. Where VAT is payable, it is most often included in the price of the goods or service that is being purchased, but it is sometimes shown separately. Not all goods attract VAT.

Currently in the UK, the standard rate of VAT (since 01/01/10) is 17.5%.

In North America, VAT is called sales tax.

Important things to remember

There are numerous exceptions and special rules within tax laws and these laws are updated regularly. When dealing with the accounting of input VAT and output VAT, you should be careful so that you do not accidentally book the VAT incorrectly. For more information contact your local VAT office.

 

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