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Originally Posted by Daithi
It was my understanding that VAT applied to every purchase. I could definately be wrong and would value the clarification
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It depends on which country you are in and the turnover of the vendor. Different countries in the EU charge different rates on different categories of goods, though they are supposed to be within certain bands. Here in the UK, for instance, there is no VAT on books.
It also depends on the tiurnover of the person you are buying from. There is a threshold turnover below which the vendor doesn't have to register for VAT. That is most significant in relation to services. If I'm a small-time repairman I might not have the turnover to require me to charge VAT, so my services will be cheaper. If I sell stuff that I have bought it is more complicated, since the price I charge will reflect that I have probably paid VAT on the stuff I am reselling, even if I don't charge VAT myself. If I'm not registered I can't reclaim VAT I have paid.
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Furthermore, the tax paid is on the added value and not on the gross cost of the item. A sales tax on the other hand is only charged on the gross price of the final sale to consumers, and when businesses are charged a sales tax it can be deducted when they file their taxes.
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Yes and no. VAT is charged on the whole sale price at every stage, but the vendor reclaims the VAT they have paid on their inputs, so the effect is to tax the value added. So if I sell you a widget for £200, then I have to add 15% VAT (provided my turnover is big enough), i.e. £30. However, I bought the widget for £100 plus VAT. When I make out my VAT return I declare that I have taken in £30 in VAT but I offset the £15 I paid out - in effect I only pay tax on the £100 value I have added.
VAT is conceptually simple but in practice horribly complicated - rich pickings for accountants.