value added tax

Indeed. A calculation can however be done for individual companies (all auditors will do this in a proper audit).

Turnover on accounts = Turnover on 1 year's VAT returns (maybe a small difference because of different period ends) VAT collected = 17.5% of turnover (most companies either have all their products or none of their products subject to VAT) And VAT paid should be a similar percentage to other companies in the same sector.

Thank you for your answers! However, the main question was: ?Whether only FINAL consumption goods are subject to VAT, or all types of goods ( including intermediate goods and investment goods)??. Probably I have not formulated this question precisely in my first message. Could you please answer this question?

You haven't formulated it much better this time. What do mean by "investment goods"?

VAT is by definition a tax on the value added by each middleman in the production chain. The way it works here is almost certainly the same as in your country. Each middleman N pays VAT to middleman N-1 on the raw materials he uses to make the goods he sells to middleman N+1, and charges middleman N+1 VAT on them. In the fullness of time the last middleman sells the goods to the end consumer, who pays him VAT on the final price.

The overall effect (ignoring complications arising from goods changing status en route) is that all the VAT is paid by the end user alone. But each middleman is involved in the administration.

Example: Farmer A grows apples on trees and sells them to factory B for price P. B pays to A P*(1+v), where v is the VAT rate. A keeps P and gives P*v to the tax office.

B enhances the apples by turning them into cider and sells them to wholesaler C for price Q, C pays B Q*(1+v), B keeps Q and gives Q*v to the tax office. B also reclaims P*v from the tax office, so in effect B only pays (P-Q)*v to the tax office.

And so it goes on. Each intermediary reclaims the VAT he paid to his suppliers from the tax office, and remits the VAT collected from his customers, in effect paying to the tax office the VAT rate multiplied by their profit.

Only the end customer pays out VAT but cannot reclaim any.

"Ronald Raygun" wrote

Shouldn't that read "markup", not "profit"? (profit just being part of the markup usually, eg another part of the markup being used to pay wages etc).

"Ronald Raygun" wrote

What if the end customer is a (VAT-registered) business who does *not* incorporate the goods into their sales?

In message of Thu, 28 Aug 2003, Andreas Perls writes

Still can't be done, because the 'FINAL consumption goods' (sic) could be subject to final VAT at 0%,5% or 17.5% or be exempt.

DF

Indeed. "Profit" has many meanings, one of them is synonymous with markup. I thought profit would be easier for a foreigner to understand than markup.

This is an anomaly (not uncommon, of course, but still anomalous). In effect this chain has no end customer as such, so in effect nobody pays VAT on it (the business does pay it, but then claims it back). Mind you, it's a bit of an injustice. Ideally, if the business is the end-user, it *should* pay VAT on it without being able to reclaim it. But I guess it would be rather difficult to police such a principle.

Could this be what the OP meant by "investment goods"?

Thank you for your answer!

I try to explain what I mean by ?investment goods?. Here is an example: A construction firma builds a house. A software firma buys (not rents) the house in order to make an office there. Must somebody pay VAT in this case? (I mean that here the house is an ?investment good?.)

OK, so you basically mean goods not intended for re-sale, just as I thought. I think your example is not a good one because it is probably the case that there is no VAT on houses anyway. A more realistic example would be the software firm buying computers on which to develop their software. They would pay the VAT to the computer supplier, but then claim it back from the tax office, so in effect nobody pays VAT in this case.

But when the computer becomes old and needs to be replaced, and if they sell the old one into the 2nd hand market, then they would have to charge VAT to the buyer and remit this to the tax office.

A new house is Zero-rated for VAT. Consequently all the sub contractors or the construction company pays VAT on their supplies, then claim it back as inputs on the zero-rated item which they sell.

The same happens with books and newspapers, which are also zero-rated. The paper, ink and power is liable to VAT, but not the resultant product.

Some things are Exempt from VAT, in which case the VAT paid on the constituent parts cannot be reclaimed.

"Terry Harper" wrote

... unless you are only *partially* exempt (

The reason it is called a value added tax has nothing to do with whether real value is added to or subtracted from the product. VAT is a sales tax, pure and simple, but tinked with to exempt the middlemen from having to pay tax on the full value at which it changes hands at each step. Instead, each middleman pays tax only on the value he adds (by virtue of the fact that he can reclaim tax paid out).

The intention is clear, that it is a sales tax designed to be paid in full by the end user. I believe that where a VAT-registered business *is* an end-user of equipment used in production, it should jolly well pay up like everyone else, and not be allowed to reclaim the input VAT.

In message , Ronald Raygun writes

Purchase tax, in other words, (or in scouse - perrchisse tacksssssssss)

Is what you are saying is that for a manufacturing company, for anything other than components or raw materials for the manufactured product, the manufacturing company can not reclaim VAT?

Well, for every sale there must be a purchase, so you can call it one or you can call it t'other. Sales tax is standard terminology in the US, I gather. Not that that should be our guide. :-)

No, I haven't lost my marbles. I know they can. All I'm saying is that it would be fairer if they couldn't.

In message , Ronald Raygun writes

I take your point but it would put us in a bit of a bugger of a position in competition with the euroland and the rest of the world.

Because the expense reduces your profit. OK, well, actually it's investment the purpose of which is to increase (or make possible in the first place) future profit, but then so is buying stock and raw materials.

Of course not. You should pay CT/IT/NI only on actual profit.

Would it? VAT is a Europe-wide phenomenon and naturally the scope of my proposal would extend thereto. As for the rest of the world, naturally they should follow our lead. :-) Let's get the yanks to abandon their sales tax.

In message , Ronald Raygun writes

I'll go along with that. The best way to implement this would be for us to conquer the world again. You Scots can start it.

Indeed, I'm not denying that.

Of course. Where VAT could not be reclaimed, it would form part of the expenses to be set against profit in the normal way, thus reducing CT/IT/NI, if necessary as part of the capital allowances, just as it would do for a business which is not VAT-registered.

The saving to the company would be, over the write-down period of the equipment, (say) 19% of the VAT spent on purchasing it, instead of, as at present, all of it straight away.

Nah, empire building ain't what it used to be. That Campbell character couldn't even conquer Downing Street without being sent off, in due course, with his tail between his legs.