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Handling sales tax #132953
10/24/01 06:05 PM
10/24/01 06:05 PM
P
pauluk  Offline OP
Member
Joined: Aug 2001
Posts: 7,520
Norfolk, England
I thought I'd take a moment to explain a non-electrical aspect of being a contractor here: Handling our equivalent of sales tax.

The present system was introduced when the U.K. joined the "Common Market" in 1972, and is called V.A.T. (Value Added Tax). It currently stands at 17.5% on all electrical goods and labor.

When I issue an invoice to a customer, I add 17.5% tax to the total, collect it from the customer, and mark it in my accounts as being payable to Customs & Excise (the govt. dept. which handles VAT).

Whenever I buy supplies, the shop I buy from does the same, so I have to pay them an extra 17.5%. I then mark this tax in my ledger as receivable from Customs & Excise. I can do the same for any other business-related expense (with one or two exceptions), including tools, stationery, business portion of telephone bill, etc.

Every 3 months, I send in a VAT return with payment of the tax owing to C&E. (Or if by chance I've paid out more VAT than I've collected during the period, I reclaim it.)

Crazy system, or what?!

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Re: Handling sales tax #132954
10/24/01 07:39 PM
10/24/01 07:39 PM
Bill Addiss  Offline
Member
Joined: Oct 2000
Posts: 3,902
NY, USA
Paul,

That doesn't sound too much different than what goes on around here, except the rate is 8.5% (NY State, Suffolk County) Some sales and services are taxable, some are not.

We charge sales tax to the customer and remit it as per schedule to dept of taxation less any tax already paid on supplies used in taxable sales and services. Oh! and we get to keep some fraction of a percentage for our role as collector!

Bill

[This message has been edited by Bill Addiss (edited 10-24-2001).]

Re: Handling sales tax #132955
10/25/01 03:45 AM
10/25/01 03:45 AM
P
pauluk  Offline OP
Member
Joined: Aug 2001
Posts: 7,520
Norfolk, England
Wow! You can keep a percentage (albeit a very small one) of the tax for your trouble??! I like that idea!

I didn't realize you paid and reclaimed sales tax in some states. In the states I inquired about this I was told businesses didn't pay sales tax on purchases - only the final non-business customer.

The thing I find crazy about the system here is that where the chain involves mostly VAT-registered businesses (i.e. most of it) there's a lot of needless payment and reclaiming all along the chain:

Manufacturer A sells a widget to wholesale distrbutor B. B pays 17.5% tax to A, A gives it to H.M. Govt. and B claims it back.

Then B sells to local distributor C, C pays tax to B, B pays it to the govt. and C claims it back. The same happens right down to where I buy the widget from the local trade store.

So far, a lot of tax has been paid and reclaimed, but the net VAT gain/loss to everyone is nil, except for the time wasted on the paper-chase.

It's only when I charge a private customer that the govt. gets to keep the 17.5%. If the job is for a business customer, he immediately claims back the VAT he paid me, so the net gain to the govt. for all the sales of that widget is zero, except of course that a few civil servants have been kept in "work" by shuffling numerous pieces of paper around.

Re: Handling sales tax #132956
10/25/01 08:47 AM
10/25/01 08:47 AM
Bill Addiss  Offline
Member
Joined: Oct 2000
Posts: 3,902
NY, USA
Paul,

I don't know what other states do, as some do not even have sales tax. BTW, our tax here varies from county to county and it all has to be documented. With us there is no reclaiming (refund). Credits for tax paid are only good when something is resold or used as part of a taxable service. When you buy materials you pay sales tax (unless for some exempt ie: charitable organization (with proper paperwork)).

When a servive or installation is performed the customer (in many cases) is charged sales tax. This tax would be entirely remitted to the state except if there were materials used (that you had already paid tax on) in which case you would claim a credit against the amount you have to remit. (BTW, services that don't include materials at all are also taxable)

Bill

Re: Handling sales tax #132957
10/25/01 04:34 PM
10/25/01 04:34 PM
P
pauluk  Offline OP
Member
Joined: Aug 2001
Posts: 7,520
Norfolk, England
I think the different sales tax rates from county to county & city to city is something people here have trouble understanding, as our VAT is done on a national basis.

The reclaim procdure seems to be slightly different, as we can reclaim VAT paid on expenses straight away, not just after the goods are used or resold.

There are a few goods & services which have no tax: Food, children's clothing, books, postage, etc.

By the way, the same basic system operates in other EU countries, except that have different rates are few differences in exempt items. (Technically there are "exempt" items and "zero-rated" items, which are not the same thing, but I won't go into that!)

Re: Handling sales tax #132958
10/28/01 07:33 AM
10/28/01 07:33 AM
S
sparky  Offline
Member
Joined: Oct 2000
Posts: 5,360
Safe to say the same level of confusion exists here with the tax system.
These guys are a lot of help for anyone interested; http://www.score.org/
Paul....you might even find a retired UK exec here!
[Linked Image]

Re: Handling sales tax #132959
10/28/01 06:22 PM
10/28/01 06:22 PM
Bill Addiss  Offline
Member
Joined: Oct 2000
Posts: 3,902
NY, USA
Hmmm,

Just thought of something. ...Not to start a 'revolution' here, but where could we have gotten this whole tax idea from??

Any Ideas?

[Linked Image]

Re: Handling sales tax #132960
10/28/01 07:09 PM
10/28/01 07:09 PM
P
pauluk  Offline OP
Member
Joined: Aug 2001
Posts: 7,520
Norfolk, England
Hmm, I guess everyone's now thinking "representation" along with "taxation," right? [Linked Image]
We can't take the blame for the crazy VAT system. Britain got lumbered with it thanks to joining the European Common Market in 1972.
That's not to say we don't have some pretty exorbitant tax of our own making though. Gasoline is more expensive here than anywhere else in Europe at the moment. When it hit nearly $5 a gallon earlier this year there was talk of a revolution then!

P.S. Some slighty-related trivia: There are still one or two British history books that list the U.S.A. as being an independent nation from 1783. Yep, you read that right - 1783. That's the year that the British govt. of the time finally accepted the American Declaration of Independence and relinquished their claim on the "colonies."


[This message has been edited by pauluk (edited 10-28-2001).]


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