Quote:
Originally Posted by murraypaul
? 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.)
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I suspect everybody is saying the same thing here, there's just a confusion between who is performing the mechanics of paying the government and who is bearing the cost.
The actual payments to the government are spread along the chain of added value, but all the cost at the end of the day is borne by the consumer.
/JB