Quote:
Originally Posted by Grumpyreader
I think it is the infact reverse of that interpretation.
You tax the next person for the value you have added to raw products.
A builder pays VAT on lumber (sp? apologies if I've got the spinal lumbar rather than the woody one) because the timber merchants turned trees into wood. The timber merchant added value therefore passes that on to the builder.
The builder turns the timber into an A-frame house, thus adding value. He then charges the housebuyer VAT as part of the purchase price because he added value. He can offset the VAT he collects (output VAT) against the VAT he paid (input VAT).
The end user is the one who foots the VAT bill because he/she doesn't add any value.
|
? Your example matches what I said:
"Each company pays VAT on the goods they sell and claim it back on the goods they buy, so that they are taxed on the difference in buying prices and selling prices."
The housebuilder will charge the final customer VAT on the house (actually houses aren't VAT'd, but we'll pretend they are.). The housebuilder has paid full price, including VAT, for the lumber.
The housebuilder has to pay to the government the VAT on the house, but can subtract from that the VAT included in the price they paid to the lumber merchant, so that they end up paying (remitting) VAT on the difference between selling and buying prices, as I said.
Example:
I buy raw materials for GBP 117.50. This is base price of GBP 100, and VAT of 17.50. I turn these into goods and sell them for GBP 352.50. This is a base price of GBP 300 and VAT of GBP 52.50.
(We assume there is no other complications at any stage.)
I pay to the government (52.50-17.50) = GBP 35 in VAT.
The raw materials manufacturer pays GBP 17.5 in VAT.
The total VAT has been paid, in proportion to the 'value added' by each of us at our stages in the manufacturing process.
(Of course the consumer ultimately ends up being charged the VAT, in the same way that they are charged for the raw materials and both companies labour.)