value added tax

Definition:

abbreviation: VAT. A tax charged on the value added by an enterprise over a period. In the UK the tax is charged on the supply of goods or services by enterprises, apart from certain supplies (e.g. of insurance and education) that are exempt. When an enterprise supplies goods or services it requires value added tax to be paid by the customer and this is known as ‘output tax’ of the enterprise. The value added tax that an enterprise pays when buying goods or services for use in its business is called its ‘input tax’. At regular intervals, an enterprise pays, to the Commissioners of Customs and Excise, the difference between the total output tax received and the total input tax paid by the enterprise. If an enterprise’s input tax exceeds the output tax then the difference is refunded. Enterprises with only a small turnover are not required to charge value added tax (see the entry for ‘taxable person’).



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