Summary
Summary FInance, VAT explained year 1
- Course
- Institution
- Book
Detailed additional document about VAT, extensive explanation, and assignments as an example.
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
More summaries for
-
Finance woordenlijst
-
Financial management year 1
Seller
Follow
solangeroos
Reviews received
Content preview
VAT (Value Added Tax)Please first have a look at this link which explains the concept in simple terms, just to start off:
http://blog.avalara.com/2013/05/29/wills-whiteboard-vat-explained/
VAT (in Dutch: BTW) is the tax levied on the value that a company has added to its products. This
addition of value arises when a company sells a product for a higher price then it paid when
purchasing this product. It is of course the customers of the company who decide whether they are
willing to pay for this added value, by either buying that product or not (customers always have to
pay the sales price including VAT).
When a company pays VAT to its supplier, it can reclaim this VAT from the government. This is called:
“VAT Receivable”.
When a company sells a product, it has to pass on the VAT over the selling price to the customer. The
company has to pay this VAT to the government. This is called: “VAT payable”.
Therefore, for any business VAT is not a cost (as an expense) but a transfer, whereby the business
temporarily acts as the Governments’ collection agent. The VAT paid to the suppliers becomes a
Receivable (from the Government) on the books. The VAT received from customers becomes a
Payable (to the Government) on the books.
Ultimately, it is the end consumer, the last one in the chain who buys the ultimate product, who
bears the cost of all the VAT.
Each section in the chain of Value Creation has charged VAT to the next element in the chain, but the
VAT payment to the government is only the difference between what is charged to the next element
in the chain and what has been paid already to the preceding element in the chain.
The following, simplified, example, illustrates this.
Iann, an early retired pensioner, discovered recently that a piece of land he inherited some time ago
from his grandfather contains a special sort of clay that is very suitable for making flowerpots. He
decides to start his own company. Every week, he excavates 200 kg of clay and sells it to Aylin, a
pottery shop, for €2.50 per kilo (exclusive of VAT). The applicable VAT rate is 21%. Iann incurs no
costs, because he did not pay for the clay. Therefore, no VAT is charged to him. The amount of VAT
that Iann charges his customer equals (200 kg x €2.50x21% = €105. The added value that Iann
realised equals ((200 x €2.50) - €0 =) €500.
Iann has to pay the VAT he charged his customers, to the government and can reclaim, from the
government, the VAT charged to him by his suppliers. The net amount of VAT that Iann pays to the
government equals ((200 x €2.50 x 21%) - €0 =) €105 and is exactly equal to 21% of the added value
of €500.
1
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller solangeroos. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $5.89. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67474 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now