Hello,
I am a law student studying VAT, I fear my understanding of the basics is preventing me from grasping further topics.
What I think I know...
Standard rated - charge output tax at 20% and recover input tax at 20%.
Zero rated - charge output tax at 0% and recover input tax at 20 or 5%???
Exempt - charge no output tax and recover no input tax.
To give a scenario...
I am a trader in magazines (zero-rated) , I buy the magazines from a producer and sell them on. I add no value, I'm simply a re-seller.
I charge output tax at 0% to my customers, but am I allowed to recover input tax at 20% on the magazines I have bought despite the item being zero-rated?
I buy a magazine for £20.
I recover £2 input tax.
I sell the magazine for £30.
I charge no output tax.
My friend a qualified tax advisor tells me that because you have purchased the magazine at 0% VAT then there is no input tax you can recover unless you were either a producer of the magazine or added value to it when selling it.
How does your say typical cornershop or news agents work who buys and sells milk, magazines etc?
Any help is greatly appreciated.
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