What is value added tax? How does VAT work for businesses? The apps has looked into this for you. Rate regimes, VAT recoverable and unrecoverable, deductible VAT here’s an overview of what to know about this tax.
Also learn about the software tools that exist in the cloud to entrust the management of VAT to experts and relieve your accountants.
Table of Contents
What is VAT?
It is a value added tax, that is to say on the difference between the price of the raw material and the final product. It is paid by individuals and by businesses.
Consumption tax created in France and instituted in 1954, VAT has evolved over time, the most common rate going from 17.5% to 19.6%, then to 20% in 2014. Through the business calculator you can find the best deal.
What is VAT used for?
Unsurprisingly, to fill the state coffers
It is even its primary source of tax revenue. It affects the majority of sales and services. The final consumer is taxed regularly on all his purchases, the companies serving as collectors, collectors for the State, hence the notion of indirect tax.
In 2015, 5.4 million businesses were subject to VAT.
The State collected 184.6 billion euros in VAT against 75.9 billion in income tax (IR) and 59.7 billion in corporate tax (IS).
To boost the economy
Contrary to the old models of taxation, such as the “turnover” tax established in 1937, it does not penalize productions requiring many intermediaries, by preventing “cascading” taxes.
Previously, each company passed its own taxes on to its customers, and so on to the end customer. Thanks to the current “split payment” system, each company deducts the VAT it has paid from its repayments.
To harmonize intra-community trade
In Europe, the rates differ a little from one country to another, each remaining sovereign in the choice of its rate.
Intra-Community deliveries are exempt when a company imports a product. It does not pay VAT in the latter’s country of origin, but in the country of destination. Thus, no risk of double taxation, each product is taxed in the same way whether it is produced in France or imported.
To limit the risk of fraud
Companies declare both their sales and also their purchases, to recover the VAT spent. It is a good control tool for the state.
Different VAT rates
The VAT rates between professionals or professionals to individuals are the same. They depend on a type of product or service.
Who is liable for VAT?
The end consumer is the one who really supports it. It pays a percentage of the product’s price excluding VAT to the company, which pays it back to the State on a monthly, quarterly or annual basis. The company is only an intermediary between the tax administration and the client. We are therefore talking about neutral VAT for businesses. For business managers, it is important to plan for prices excluding VAT that represent what will really stay in their pocket, which is why the income statement is produced excluding VAT.