Value added tax is the indirect taxation on the sale of products to final customers. It is included in the retail price. VAT registered businesses charge VAT on their sales and recover VAT on their purchases and expenses and pay the difference to HMRC (Her Majesty’s Revenue and Customs). They submit returns to their tax authorities on a regular basis (every three months in the UK) where they declare the value of their output tax and input tax in that period which is accompanied by the relevant payment.
How it works:
CASE 1: Where the standard VAT is 20% (Some products have reduced VAT rate as 5%)
NOTE: The procedure remains the same for reduced VAT, too!
Letâ€™s first understand how the standard VAT is calculated!
A manufacturer purchases goods costing Â£500,000 plus VAT @20% i.e. Â£100,000. He purchases them from suppliers each of whom is registered for VAT and charges VAT on their supplies. He makes a number of products that he sells to a retailer for Â£1m plus VAT @20% i.e. Â£200,000.
The manufacturerâ€™s VAT return shows the following:
- Output tax: Â£200,000 payable to HMRC
- Input tax: Â£100,000 reclaimable from HMRC.
- Net tax payable: (Â£200,000 – Â£100,000): Â£100,000.
The retailer sells all of the products to retail customers for a total of Â£1,800,000 plus VAT @20% i.e. Â£360,000.
The retailerâ€™s VAT return shows the following:
- Output tax: Â£360,000 payable to HMRC.
- Input tax: Â£200,000 reclaimable from HMRC.
- Net tax payable: (Â£360,000 – Â£200,000): Â£160,000.
CASE 2: VAT EXEMPT
Customers who are exempted from VAT need to submit a form while purchasing VAT exempt products.
- Firstly, If you are legally entitled to vat exemption, please decide on the type of vat exemption issue.
- Download the appropriate form from https://www.gov.uk/government/collections/vat-reliefs-for-charities-disabled-and-older-people.
- Submit it to the store owners from whom you want to buy the VAT exempt products.
For more details please visit https://www.gov.uk/financial-help-disabled/vat-relief
How can Magento store owners dealing with VAT exempt products handle these situations??
Answer lies in Milopleâ€™s
Milople have come up with a solution that gives a sigh of relief to store owners. We developed VAT exempt extension where by a new block gets added at the checkout step itself. Additionally, store owners can easily create and manage reasons from backend to allow ZERO VAT on products. This reduces the task for store owners from customizing the store to maintaining the overall product data base.
Our extension is 100% user-friendly which lives up to the clientâ€™s extension in every way. Hereâ€™s the proof:
One of our client wanted to have extra input fields so that the functions defined the original UK VAT form. He wanted to have the same form implemented at the checkout page and thus our team did wonders for him as we delivered the product as per the expectations.
Please, see the below aspirational words from our client which we received on
Thus, the extension reduces the efforts of store owners from customizing the complete store for vat exempt. Instead of wasting time in making changes, apply the VAT exempt extension directly and note the change you were wanting!!