Value Added Tax in the UK

[Raccoon]

Why do people in the UK have to charge people in the UK a Value Added Tax (VAT)? I've seen several posts now that suggest when a locksmith earns a certain amuont of money, he has to start paying (thus charging) VAT for his work.

As I understand it, Value Added Tax only applies when the merchant and the customer reside in different countries. VAT is added to the bill by the importer country against the importing resident so the exporter country doesn't take jobs away or deminish their gross national product, thus balancing hard economic times where people might be tempted to import product rather than purchase locally.

So why is the UK charging VAT for UK<->UK transactions? Are thee at war with y'selves?

[Mark A]

Raccoon

Vat has to be charged if your total turnover is £58000 or over.

This must be added on both labour and material costs at a rate of 17.5%

Mark

[Raccoon]

That would be Income Tax, not VAT.

[Raccoon]

Why don't larger companies just split up into smaller independant firms, one for each department, and issue contracts to eachother?

A small group of locksmiths would become independant contractors, each making his/her own income. A single locksmith could create multiple companies-- a business license for lockouts, a business license for fitting doors, etc. Each division earning less than £58000.

[toomush2drink]

In this country the vat is collected/enforced by a government department called customs and excise, they have more power than the tax office. Paying tax late etc is one thing but messing with your vat is a whole new game and something you dont want to mess about with.Most loop holes have been closed and its not worth risking the fines for trying to out smart them.

[Raccoon]

So I ask, why is UK Customs messing with domestic affairs?

VAT used to be collected at point of delivery, not point of sale. Customs would see an imported package having some value, and charge the recipient of said package upon delivery. They don't touch UK to UK packages, only International to UK packages. How did they become the IRS for domestic sales?

[Mark A]

Vat was inroduced following our membership of the EC now morphed into the EU

It was suposed to be a tax that would fund the EU eventually,but just recently there is talk of taxing texts and Emails to do this instead

[devildog]

I think you've got it backwards; I've been to the U.K. and Europe and it seems to me that only domestic transactions involving citizens of that country had VAT applied to them. When I was there you were, if you weren't a citizen of that country and just visiting, able to apply for a VAT refund before you left where they gave you back what you paid in VAT for all the stuff you purchased whilst in that country that you could provide receipts for to prove it. Also, there were 'duty free' places where you didn't have to pay VAT if you could prove you weren't a citizen by presenting your passport.

[Mark A]

Who has got what backwards?

[devildog]

Someone said that VAT doesn't apply domestically but only with international transactions; if that were the case then you guys in countries with VAT would never pay it unless you bought something from another country. I'm 98% sure it's just the opposite: it only applies to citizens doing domestic transactions but not tourists or international transactions.

[NKT]

VAT is a tax on adding value, and it applies to both services and goods. It is an input tax, so you only pay it on the difference (the value added) whilst you have it.

e.g. I dig up some mud, and turn it into iron ingots, I don't need to charge VAT when I sell those ingots unless I am VAT registered. If I am (and I have to be if I sell over £65k a year [it just went up for £58k]) I have to add 17.5% to the sale. So the £100 sale becomes £117.50, and the 17.5 goes to HM Revenue & Customs (they just changed names, too).

Now, if a business buys the ingots, and they are VAT registered, they can claim back that 17.5% VAT, so it costs them £100. However, when they process the iron, and sell it on for £200 as a bag of spanners, they have to charge £235. Again, 17.5% goes to HMR&C.

Now, if that business wasn't VAT registered, that iron would simply cost them £117.5. This makes business more expensive for them, and leaves them at a disadvantage if they sell spanners mostly to VAT registered businesses, as they cannot claim the VAT back from the spanners they buy.

If you are providing to the public, they pay the tax. The (VAT registered) businesses don't. As a lockie who does a lot of business with companies, I have VAT registered, so I can claim VAT on what I buy back, and then charge it on again. This saves me money. However, when I open a door or change a lock for a person, I am 17.5% more expensive than a non-VAT registered fellow charging the same. But he doesn't get the 17.5% back for his locks he bought to fix, and I do.

I also get to do more paperwork.

[Raccoon]

Thanks for that explanation. I guess I did have it backwards.

So what is the tax charged for products shipped internationally? Eg, I can ship something from America to any other country, and I have to declare its value on the shipping invoice. If the item is not a "gift" (and sometimes even if it is a "gift"), the recipient of the package has to pay Customs a % of that package's declared value. Sometimes, Customs will contend the declared value stating the package is actually worth more, and charge the recipient even more.

I thought this was VAT, as the excuse Customs gives for taxing these shipments is to prevent the country's economy from slipping due to cheap imports of foreign labor.

[NKT]

No, that's Excise and sometimes Duty. They then add the VAT on top, bringing it to 27.5% for something like a computer/laptop.

Alcohol, tobacco, etc. all have Duty on top, too. Or it might be the other way around.

[Shrub]

If we buy somthing here and send it to someone in the eu that item is already duty paid and the recipiant will have no further costs to pay,

If we buy somthing and send it to someone out of the eu there is no duty to pay so a company sending you an item should not charge vat on that item when you order it,

If someone from outside the eu sends us somthing we will have to pay duty on it and vat,

We can get around this some of the time by asking the parcels to be marked as samples or gifts as duty and vat are not allowed to be charged on such items but if customs think somthing is suspitious with the parcel then they can look in it and if there is 3000 key blanks or somthing thats obviously not a gift or sample so will charge you duty and vat on top, they will not release the items until it is paid and if not paid the items will either be destroyed, sold off at goverment autions or returned to sender.

[CaptB]

value of the item -
You also have to be careful with the value of the item if its sent as a gift. My neighbour got a silly amount of tax charged due to his items being brought in from Japan. Because they valued them at UK high street prices rather than the costing that he had paid. (reason for getting them from Japan in the first place was they were less than half price).

Best thing for anyone who is over the tax band threshold is get a good accountant.