I thought its was just a 20% tax on all purchases, but after watching a YouTube video on it, it seems more convoluted than that
In: Economics
VAT is a tax on the value added to a product or service. For the end consumer, you simply pay the VAT rate (so if the VAT rate is 20% and your product costs £2000, you pay £2400 of which £400 is VAT).
If you’re a seller, you can reduce how much of that VAT you need to pay by how much VAT you paid to create a product. If you buy £1000 worth of raw materials you’ll pay £1200, thus paying £200 VAT. If you then do something to this raw material (say you buy wood and make a table) and sell it for £2000 (£2400 with VAT), you’ll only need to pay £200 to the government, because £200 of the £400 that needs to be given to the tax department was given when you purchased your raw materials. You’ve “added” £1000 of value to the materials, so you as a seller only need to pay £200 in taxes because 20% of £1000 is £200. The remaining £200 was paid by the guy you bought your raw materials from.
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