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Finance & Accounting
Pages 9 (2259 words)
Introduction to Value Added Tax (VAT) The value added tax (VAT) mechanism is utilised for taxing the consumption of goods and services in an economy. Essentially, VAT is a consumption tax though its implementation differs from that of other consumption taxes such as sales tax.
However, the impact of tax travels to the end consumer in a VAT scheme much like other taxation systems since goods and services providers tend to move the taxed amount to the end consumer’s final price receipt (Ebrill et al., 2001). VAT Implementation in the United Kingdom VAT is not a new concept to the United Kingdom (UK) and was in place before the UK signed up for the European Union. The initial implementation of VAT in the UK dates back to 1973 when it was introduced by the national government as an entry condition to join the European Union (EU) (Warren, 1993) (IFS, 2009). VAT is not levied universally on all goods and services in the UK. Instead, VAT is applicable to certain goods and services at varying rates in the UK. Directives concerning the amount of VAT and its application to goods and services are provided both by the UK government and certain EU rules and guidelines. Moreover, VAT rates tend to vary for certain goods imported from outside the EU (HMRC, 2013). VAT Rates Her Majesty’s Revenue and Customs (HMRC) provides for three different VAT rates that are classified as (HMRC, 2013): Standard 20% Reduced 5% Zero 0% Standard VAT rates apply to most goods and services consumed in the UK while reduced rates apply to certain items such as fuels, energy savers, power items etc. ...
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