Basis of charge

Value added tax (VAT) is a tax levied on the supply of goods and services in the UK. UK VAT is levied on certain supplies goods and services supplied within the UK and on the import of goods into the UK from outside the European Union (EU). The purchase of goods and from suppliers located in other EU member states are also subject to VAT and there are special VAT rules that need to be applied by business trading across borders within the EU. The rules are fully explained in the following guidance notes Exporting goods to non-EU countries, Supplies of goods within the EU and Buying goods from other EU vendors

VAT was introduced in the UK in 1973, as a result of the UK's entry into the European Economic Community. Council Directive 2006/112/EC

As the UK is part of the EU, any UK VAT legislation must comply with the relevant EU Directive. In the UK the EU Directives are implemented through the Value Added Tax Act 1994 (VATA 1994) and various Statutory Instruments (SI).

It should be noted that where there are inconsistencies between the UK legislation and the EU Directives EU law takes precedence. As a result, it is possible that an EU member state has incorrectly applied the EU legislation or acted outside the 'intention' of the EU legislation. Therefore, there is a Court of Justice of the European Union (CJEU), also still known as the ECJ, which has ultimate responsibility to determine the correct interpretation of the relevant EU legislation. If a case is deemed to be a very important point of law, then it can be referred to the CJEU for a final ruling, and the decision of the CJEU is binding on all EU member states.

It should also be noted that the European Commission has the power to direct an EU member state to change its law if it considers that the local legislation has not been enacted so it is fully compliant with the relevant EU Directive. The UK has been directed on several occasions to change its local law to fully comply with EU law. The EU member state can appeal to the CJEU if it does not agree with the direction issued by the EU Commission.

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