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My question comes after reading this article about Amazon paying just £15 million in tax for European revenues of over £9 billion.

Here, I am confused about when businesses pay VAT (VALUE ADDED TAX). From what I know, Amazon adds VAT when buying in United Kingdom, and I can definitely see it on receipts. Is Amazon not supposed to pay ~ 20% or £1.8 billions in VAT? Or can VAT be deducted?

Important example

Let's say we have a business that sells goods for £100 each, but the manufacturing/costs of production of these goods is £90/product, thus we earn £10 for each sale. Are we supposed to pay VAT on the £100 in sales and lose £10 for each product? Or are we supposed to pay 20% on the £10 that we earn on each product?

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  • The mechanics of VAT do not matter as much as the fact that you, the customer, pay VAT. The business merely collects it on behalf of the state.
    – Relaxed
    Dec 17, 2018 at 23:08

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VAT means what it says — Value Added Tax. It’s a tax on the value that your business adds. You deduct all the VAT you have paid to your suppliers from your own VAT bill. So in your example, if your £100 item requires the purchase of VATable goods and services worth £50, you pay £10 of VAT — 20% of the other £50. You don’t get to deduct the costs of non-VATable inputs such as labour.

However, VAT (and many other taxes, such as business rates) are not included in the claim that Amazon only pays £15 million in tax. These claims refer specifically to corporation tax, which is payable on profits.

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  • Thanks for the clarification. It truly makes more sense, the part where I pay VAT on the 'other half' was the part I couldn't understand. Also thanks for making sense of the corporation tax in the article mentioned Regards.
    – Iulian
    Dec 17, 2018 at 21:36
  • This. You either purchase goods "before VAT" and pay VAT on the whole sales price, or you purchase goods "after VAT" and deduct the VAT you were charged from the VAT you pay the government.
    – xyious
    Dec 18, 2018 at 16:38

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