Difference between sales tax and VAT

Difference Between Sales Tax and VAT

08/07/2022Tax Issues , Taxation

The development of a country’s economy has a lot to do with tax and related policies. There is a possibility of the production of the growth of the economy through the policies of taxation before the time as well. Due to this, the professionals keep on updating and making new policies with the help of finance experts. To make such decisions, the growth and capacity of people who will pay the tax are considered every year. People tend to confuse the difference between sales tax and VAT.

Keeping this in mind, we aim to make this clear in this guide. VAT and sales tax are known to be the two popular tax structures. Their structure came into being a long time ago. This is certain that both VAT and sales tax serve the same cause as both of them are meant to apply to the services and products offered by different systems. However, there are still some differences that make them both define uniquely. We have gathered a basic and introductory explanation of VAT and sales tax along with the prominent differences between them.

 

Get in touch with one of our experts if you are stuck with your sales or value-added tax. We will offer to provide instant help. 

 

What is Value Added Tax

VAT is the abbreviation of value-added tax. It is a system that is multi-stagged taxation. At the level of production, VAT is the kind of tax that is charged whenever a value is added. VAT is paid by the consumer and it tends to increment at every stage of the production of whatever product your business offers. In the case of shared services, VAT is compensated as well. VAT is not meant to charge on each step of the production. When it comes to export, VAT is not charged and exports are considered exempt from this.

It is vital to keep in knowledge that when a buyer pays the amount of money to purchase your service or product, the cost of material used in the production will be subtracted. Moreover, VAT is a standardised model and does not tend to affect the customers more than the income tax. individuals with lower income find it difficult in the longer run. Because VAT cumulates at the production stage, it is known as cascading tax.

VAT is not affected by the income of the taxpayers because it is allowed to charge only on the utilised products and services. Unlike the case of income tax where the tax percentage is more if one earns more money. VAT is equal for all the consumers who use your services and products.

 

An Introduction to Sales Tax

When it comes to the sales tax, it is charged on a product at the time of sale. It is known as the consumption tax that applies at the point of sale of any products or services. The formula for sales tax collection is easy and simple. When a consumer purchases any product, the retailer will collect it and submits it to the government. All the businesses come under the liability of the sales tax. The total value of the product is charged with the sales tax.

Unlike VAT which is shared on every level of the production stage when value is added to the product, sales tax is known for adding to the cost of the product. The value of the product is changed due to this and the tax will be collected in this process as well. According to the research of economists, sales tax does not involve any harmful factors to intervene in the growth of the economy. This is because the sales tax does not change as the income or business profit of the consumer changes.

 

Difference Between Sales Tax and VAT

The prominent difference between VAT and sales tax is the way it is applied to a commodity. Other prominent features that belong to these types of taxation structures are listed and explained below:

  • The application of the tax in both structures is different. Because in the case of VAT, it is allowed to charge tax at every level of production while sales tax is charged on the cost of the product when it is time to sell the product.
  • VAT is known as a taxation system that is multi-stagged and tends to cascade at all levels of production. On the other hand, sales tax is known to be a single-point ta system.
  • It is not possible to evade VAT, however, there are legal possibilities to evade sales tax.
  • VAT is a tax type that belongs to the vale added stages of a product whereas sales tax belongs to the single-stage when the overall value of the product is finalised.
  • VAT is supposed to be a burden that is given to all the manufacturing entities right from the initial stage of production till the product is finalised. However, sales tax is only for the end-user to be paid.

 

The Bottom Line

Now that you have gathered a fair amount of information about the difference between sales tax and VAT, we can bring the discussion toward wrapping up. We can sum up by saying that VAT and sales tax are two prominent structures of the taxation system that are mainly used to charge tax on the products and services offered by businesses. However, the way both VAT and sales tax is applied to the products is different from each other.

Which makes each tax structure different and unique in its way. We hope these few minutes of reading will help you to develop a better understanding and help you to deal with the taxation systems more professionally.

 

Reach out to our young, clever, tech-driven team members to learn the difference between sales tax and VAT. Call us on 02086868876 or email us today.

 

Disclaimer: The information about the difference between sales tax and VAT provided in this blog includes text and graphics in general. This does not intend to disregard any of the professional advice.


Related post

main types of taxes
What are the Main Types of Taxes in the UK?

03/03/2023tax , Tax Issues , Tax News and Tips , Tax Saving Tips , Taxation

It has been observed that the tax code in the UK is most extended since the tax year 2009. It will not be wrong to presume that tax affairs are one of the most complex matters here. This is due to the fact that the tax authorities and system is designed in a straightforward way. One of the main yet difficult parts of tax rules is that even spouses are considered separate entities. Every individual whether living in a civil partnership, married, or single is being taxed individually according to the tax law. Then there are a few exceptions observed as well. As a beginner in tax affairs in the UK, you must gather basic information regarding the main types of taxes in the UK. Moreover, this is imperative to mention here that when you will begin to pay taxes, you will have to go through three different stages. There is the involvement of the central government, local government, and the devolved government. The tax year is on the 6th of April and ends on the 5th of April and it is also known as the fiscal year. Moreover, there are main types of taxes that are mostly implemented for a resident of the UK. We have covered everything related to these types in this guide. Let us get started with the discussion to learn more.   Reach out to our smart and clever-minded guys to get an understanding of the main types of taxes in the UK. We will help to understand your queries instantly.   What are the Main Types of Taxes in the UK? Usually there considered to be six main types of taxes that are implemented on individuals when living as a UK resident. This involves the tax liabilities of paying the national insurance contribution, value-added tax, excise duties, corporation tax, stamp duty, and income tax. The relevant details are explained below for further understanding.   1- National Insurance Contribution National insurance is paid by individuals in the UK to ensure that they qualify for state pension and some other certain benefits from the government. National insurance contribution is mandatory to pay for the ones who are more than the age of 16 and earn to a certain limit. In the case of being self-employed, the profit has to be more than a certain amount to bring in the liability of paying the national insurance contribution. Moreover, there are different classes of national insurance contributions. This explains that not every individual is paying the same amount. The decisive role is played by the amount you earn and what is your employment status in this regard. You must also ensure that there are no gaps in the record of your past payments of national insurance contributions.   2- Value-Added Tax (VAT) Value-added tax is also known as a consumption tax. This tax is also a great source of government income just like the national insurance income tax is. The standard rate of VAT which is 20% is applied to several common things in the UK. The fair of taxis, pushchairs, prams, chocolates and alcoholic drinks are a few examples of which VAT is implemented with a standard rate normally. However, the rates of VAT on the mobility of elders, solid fuel, heating oil, gas, electricity, car seats, and oil is a little lower than other things. There is a category of zero rates items well which includes poultry, meat, fruits, vegetables, and household water. Then comes the things that are exempted from VAT.   3- Excise Duties Excise duty is normally charged on things like vehicles, betting, tobacco, and alcohol. The individuals who are involved in producing these items are also charged excise duty. Normally the excise duty tax is implemented on the final price for sale. The consumer will have to pay the excise duty indirectly to the government in the UK. There is a separate form for the excise duty as well. So it is better to be aware of the standard rates of excise duty to know what exactly are you paying in form of tax indirectly to the government.   4- Corporation Tax A corporation tax is known to be a tax that is implemented on the number of profits of a company. This explains that if you are involved in carrying out business through a limited company, a foreign company that has a UK branch, or any club corporation, you will be liable to pay corporation tax. There is a standard rate of corporation tax as well which could even come down in certain situations. This depends on the kind of business you are carrying out that will decide how much you will pay as a corporation tax for your limited company.   5- Stamp Duty This tax is known as the stamp duty land tax. If you are an individual who is interested in buying a piece of land or a party in the UK that has prices over a certain figure, you will have to pay stamp duty land tax. In the case of buying a first home in the UK, you might get entitled to some discounts in this regard. In some cases of buying the first home, you will not have to pay any tax at all.   6- Income Tax This kind of tax is implemented on your income directly. How much amount you will pay in form of income tax depends on the figure you are learning that is over the amount of your personal allowance. You will have to consider the fact about which tax band you belong to according to your earnings. There are some cases where you can even apply for income tax relief.   The Bottom Line Now that we have gathered a fair amount of information about what are the main types of taxes in the UK, we can bring the discussion towards wrapping up. There are main six types of taxes that are normally implemented according to your unique …

Read more
VAT on commercial vehicles
Claiming Back the VAT on Commercial Vehicles

16/01/2023tax , VAT

There are several businesses that have a clear understanding of how they can reclaim VAT on commercial vehicles. This is because the VAT input is allowed for commercial vehicles and it is blocked in the case of personal cars. However,  you must first learn to differentiate what is a commercial vehicle and how its use is different from your personal vehicles. Many of you say that there is no issue in identifying a commercial vehicle. However, it’s not as easy as it may sound. The common examples people tell are about transit vans and HGV, which is right to a certain extent also. Vehicle companies are more inclined these days to manufacture vehicles with a dual purpose. This is why it becomes a little complicated for common people to identify commercial vehicles. Moreover, when you are carrying out a small business, it is imperative to keep yourself aware of the vat on commercial vehicles. You must gather information about the difference between commercial and personal vehicles. Also the use of dual-purpose cars, how is it beneficial for your business. This will help you to deal with these vehicles and make the most business benefit from the right kind of use of these vehicles. This guide is consciously compiled to explain the fact about what are types of cars that can input vat, how to reclaim VAT on commercial vehicles, how to check for VAT recovery on commercial vehicles, and what to consider before you plan to buy a commercial vehicle.   Reach out to our smart and clever-minded guys to get your VAT on commercial vehicle queries answered quickly. We will help to decide how to deal with your rules and their implications.   What are the Types of Cars that can Take the Input of VAT? You are aware of the fact that you can only reclaim VAT on vehicles that are commercial and solely being used for business activities. Common examples of commercial vehicles are coaches, vans, tractors, and HGVs. Now comes the example of vehicles that are manufactured in a dual-purpose way. These are known as dual-purpose vehicles. These come under the category of commercial vehicles even when they are being used for other purposes as well. The market sells them as lifestyle vehicles. This is allowable for you to reclaim vat on this kind of vehicle fully. HMRC considered the following in the list of dual-purpose vehicles: Caravans Motorhomes Motorbikes Vans have the rare seats Other kinds of vans   Is VAT charged on Commercial Vehicles” VAT (Value Added Tax) is generally charged on commercial vehicles when purchased new. However, unlike regular cars, businesses can typically reclaim this VAT amount if they are registered for VAT and use the vehicle solely for business purposes. In the case of used commercial vehicles, the VAT situation can vary depending on whether the seller is VAT-registered and the method used for selling (e.g., margin scheme).   How can I Reclaim VAT on Commercial Vehicles? Before you aim to reclaim vat on commercial vehicles, you must first identify when is the vehicle being used for business purposes and when is it being used for personal use. This is because the checker of VAT will most likely be interested in knowing and figuring out these details about the vehicle. In the case your vehicle is used for private use as well, you should make adjustments in the VAT accordingly. However, it is allowed to have occasional use of commercial use for the sake of private work as well. However, you must have the evidence to make a claim that the use was only incidental. The good news is that you can reclaim VAT on the vans that you have bought only for your business commercial use. But in the case of dual-purpose vehicles that are partially being used for personal uses as well as commercial use, you will observe restrictions in reclaiming VAT for such vehicles.   Checking of VAT Recovery on Commercial Vehicles by HMRC The recovery of VAT is genuinely checked when the inspection team comes from HMRC. This is specifically checked for commercial vehicles. Now if you have bought the dual purpose car, there will be a check the personal use if any and the inspection will be carried out accordingly. The response of HMRC is usually aggressive in the case of dual-purpose vehicles that are being used for the purpose of personal activities and the reclaiming of VAT is added with full details. In another case of benefit in kind for direct tax, the VAT will not be reclaimed fully again. Otherwise, you will not find any restrictions in the recovery of VAT. If the private use is for a local trip to the nearest store, even then it is allowed for you to reclaim VAT fully.   A Practical VAT Tip to Consider Before Buying the Commercial Vehicles In simple words, we can say that when you buy a vehicle to be used fully for business purposes, there will not be any VAT restrictions to reclaim. On the other hand in the case of dual-purpose vehicles, you are using it for personal use significantly. You will find the restriction in the input tax and what you can reclaim in VAT.   The Bottom Line Now that you have gathered a fair amount of information about VAT on commercial vehicles, we can bring the discussion towards wrapping up. This is challenging for people to pay VAT when they are paying the prices of commercial vehicles. This is why HMRC allows reclaiming this amount of money. However, there are certain rules related to this. The rules have to be met for a successful claim. Also, ensure that the commercial vehicle is being used for business purposes only and that there is no involvement in private chores or relevant activities. This private activity will have to go into adjustment if there is any evidence of personal use. We hope these few minutes of reading will help you to …

Read more