What is VAT?

• A. An indirect tax charged for goods and services supplied in the UK by VAT registered businesses.
• B. A direct tax on profits.
• C. A tax on imported luxury goods only.
• D. A tax paid by individuals at the end of the fiscal year.

Answer: (A)

VAT is a consumption tax charged on most goods and services sold in the UK by businesses that are registered for VAT. It’s indirect because the business collects the tax from customers and passes it to the government, rather than paying it from profit. The seller adds VAT to the selling price (output tax) and can reclaim VAT paid on purchases (input tax). The end consumer ultimately bears the cost, through the price they pay. It’s not a direct tax on profits, not limited to luxury imports, and it isn’t paid by individuals at year-end.