CIMA F1 Syllabus C. Fundamentals Of Business Taxation - VAT - Notes ^{7 / 10}

Buying down the supply chain

1. Producer sells to retailer for 100 + 20 (VAT)

   The Producer shows 20 output tax on its VAT return and pays it over to the authorities

   Don't forget though that they received the 20 that they're paying over to the VAT authorities so they are neutral tax payers.

2. Retailer sells to customer for 200 + 40 (VAT)

   The retailer shows 20 INPUT tax on its VAT return and 40 OUTPUT tax - it has to pay the net 20 to the VAT authorities

   So, they paid 20 VAT to the producer, received 40 from the customer, and paid 20 to VAT authorities so they're neutral tax payers again

3. Customer pays 240

   Customer has paid the 40 VAT, so they have ultimately paid the 2 x 20 paid over to the authorities earlier