Value added tax

Value added tax (VAT) is effectively a charge on consumer spending which applies to the value added to a product or service at each stage of its production and distribution. VAT is collected in stages by VAT registered firms. The consumer pays the full amount of the tax but at each stage up to that point firms handling the goods pay input tax to their suppliers and collect output tax from their customers. Firms pay the net VAT collected to Customs and Excise. In principle, VAT is very simple, though for some sectors such as retail, it can be quite complex.

Hot topics

Accountants across Europe are calling for major reforms of the current VAT system, claiming the present arrangements facilitate fraud and cost the EU's member states revenue. The European Federation of Accountants (FEE) is concerned that the VAT system has not evolved enough in the last 50 years and is increasingly complex for business to deal with. The European Commission estimates that fraud accounts for between €80 and €100 billion of lost revenue every year - equivalent to the entire VAT collection of France.