tax
Sales Tax / VAT
Tax added to the sale of goods and services - sales tax in the US, VAT in the UK and EU.
Definition
Sales tax (US) and VAT (UK/EU) are taxes added to the price of goods and services that the business collects from customers and remits to the tax authority. In the US, sales tax varies by state and locality (4-10% typically) and is generally collected only by businesses with 'nexus' (physical or economic presence) in that state. In the UK, VAT is 20% standard rate and registration is required once turnover exceeds £85K. The business is a collector, not a payer - the tax belongs to the authority, not to revenue.
In your business
- →Never spend collected sales tax / VAT - it's not your money, it belongs to the IRS / HMRC
- →Set aside collected tax in a separate account or sub-balance
- →Once registered for VAT or required to collect sales tax in a state, stay compliant - penalties compound