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I.

The value added tax in the United Kingdom
1. Overview about the value added tax in the United Kingdom

In the United Kingdom, the value added tax (VAT) was introduced in 1973,
replacing Purchase Tax, and is the third-largest source of government revenue after
income tax and National Insurance. It is administered and collected by HM
Revenue and Customs, primarily through the Value Added Tax Act 1994.
VAT is levied on most goods and services provided by registered businesses
in the UK and some goods and services imported from outside the European
Union.There are complex regulations for goods and services imported from within
the EU. The default VAT rate is the standard rate, 20% since 4 January 2011. Some
goods and services are subject to VAT at a reduced rate of 5% (such as domestic
fuel) or 0% (such as most food and children's clothing).Others are exempt from
VAT or outside the system altogether.
Under EU law, the standard rate of VAT in any EU state cannot be lower than
15%.Each state may have up to two reduced rates of at least 5% for a restricted list
of goods and services.The European Council must approve any temporary
reduction of VAT in the public interest.
VAT is an indirect tax because the tax is paid to the government by the seller
(the business) rather than the person who ultimately bears the economic burden of
the tax (the consumer). Opponents of VAT claim it is a regressive tax because the
poorest people spend a higher proportion of their disposable income on VAT than
the richest people. Those in favour of VAT claim it is progressive as consumers
who spend more pay more VAT.
2. The content of the value added tax in United Kingdom
2.1 Tax payer
Businesses with a turnover of more than £85,000 must register to pay and
charge VAT on the products and services they buy and sell. Other businesses can
choose to register for VAT voluntarily. Basically it is a tax on business transactions.

Businesses charge their customers VAT, but must then pay this to HMRC
(Her Majesty’s Revenue & Customs) when they file their VAT return.


2.2Tax bearer
The tax bearer can not be found because tax can be transferred in the UK.
2.3 Tax rate
There are currently three rates of VAT: standard (20%),reduced (5%) and
zero (0%).In addition some goods and services are exempt from VAT or outside the
VAT system.
The standard rate of VAT has changed over time, with Governments
choosing to raise or lower this tax depending on their priorities and the state of the
economy. The rates were:
Year

Standard rate of VAT

1973-74

10%

1974-79

8%

1979-91

15%

1991-2008

17.5%

2008-09

15%

2009-11

17.5%

2011-present

20%

The standard rate of VAT in the UK is currently 20% and this is the rate
charged on most purchases. However, there are other VAT rates which need to be
aware of as a business.
Reduced rate VAT is charged on sanitary products, energy saving measures
and children’s car seats and is charged at 5%.
The zero rate – as the name suggests, charged at 0% – is applied to most
food, books, newspapers and children’s clothes. Although no VAT is charged, the
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sale of zero rate goods and services still has to be recorded and reported on the VAT
return.
On top of that, some items are ‘exempt’. These include postage stamps and
financial and property transactions. As with zero rate items, no VAT is charged on
these goods and services. However, these do not need to be counted in the taxable

turnover.
EU law dictates that the standard rate of VAT in EU states should not be
lower than 15%.
To be more specific, the following are the rates applicable to some common
goods and services:
Standard
rated
(20%)

Alcoholic drinks
Biscuits (chocolate covered only)
Bottled water (inc. mineral water)
Calendars & diaries
CDs, DVDs, video games, & tapes
Clothes & footwear (not for children under 14)
Confectionery/sweets
Delivery charges (postage & packaging)
Electrical goods
Electricity, gas, heating oil & solid fuel (business)
Food & drinks supplied for consumption on the premises
Hot take-away food & drinks (inc. burgers, hot dogs, toasted
sandwiches)
Fruit juice & other cold drinks (not milk)
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Nuts (shelled, roasted/salted)
Postal services (Royal Mail/other licensed operators)
Reduced
rated

(5%)

Children's car seats
Electricity, gas, heating oil & solid fuel (domestic/residential/charity
non-business)
Energy saving materials (permanently installed in residential
premises)
Maternity pads
Mobility aids for the elderly
Sanitary protection products
Smoking cessation products

Zero
rated
(0%)

Aircraft (sale/charter)
Bicycle & motorcycle helmets
Books, maps & charts (not ebooks)
Brochures, leaflets & pamphlets
Building services for disabled people
Canned & frozen food (not ice cream)
Chilled/frozen ready meals, convenience foods
Clothes & footwear (for children under 14 only)
Construction & sale of new domestic buildings
Donated goods sold at charity shops
Equipment for disabled people (inc. blind/partially sighted)
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Live animals for human consumption
Newspapers, magazines & journals
Nuts & pulses (raw for human consumption)
Prescription medicine
Protective boots & helmets (industrial)
Public transport fares (bus, train & tube)
Sewerage (domestic & industrial)
Shipbuilding (15 tonnes or over)
Tea, coffee & cocoa
Water (household)
Exempt

Antiques, works of art or similar, when sold to public institutions
Commercial land & buildings
Cultural events operated by public bodies
Education, vocational training
Financial services
Funeral plan insurance
Gambling (betting, gaming, bingo, lottery)
Health services (doctors, dentists, opticians, pharmacists & other
health professionals)
Medical treatment & care
Sports activities & physical education
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TV licence
2.4 Tax base
A tax base is the total amount of assets or income that can be taxed by a
taxing authority, usually by the government. It is used to calculate tax liabilities.

This can be in different forms, including income or property.
The tax base of the value added tax in the United Kingdom includes:
●
●
●
●

The unit price excluding VAT
The quantity
The VAT rate
Any cash discount

2.5 Tax incentive and redistribution:
Two general issues arise in the context of VAT in the United Kingdom:
incentives and redistribution. It is frequently suggested that a revenue-neutral shift
from direct to indirect taxation, such as that introduced in 1979, will reduce tax
induced disincentives to work. But if the attractiveness of working relative to not
working, or working an extra hour as opposed to not doing so, is determined by the
amount of goods and services that can be bought with the wage earned, a uniform
consumption tax and a uniform earnings tax will clearly have very similar effects.
Cutting income tax will not increase the attractiveness of work if the price of goods
and services rises by an equivalent amount because of the increase in consumption
tax. It may be, of course, that the shift will reduce the burden of taxation for one
group and raise it for another, and that this redistribution will affect incentives. But
this has little to do with the choice between direct and indirect taxes.
The second general issue concerning VAT relates to redistribution. Many
goods in the UK are zero-rated for VAT, with food and children’s clothing being
examples. This zero-rating is often defended on distributional grounds, because
those with low incomes allocate a large proportion of their expenditure to these
items. But VAT should not be considered in isolation from the rest of the tax and

welfare system. Since the UK government is able to levy a progressive income tax
and pay welfare benefits that vary according to people’s needs and characteristics,
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this will generally prove a much more effective means of meeting its equity
objectives – although the better-off spend a smaller proportion of their incomes on
zero-rated goods, they spend larger amounts of money and are therefore the main
cash beneficiaries of zero-rating would also have the advantage of removing the
distortions in people’s consumption decisions that result from differential tax rates
for different goods.
2.6Formulas to calculate the United Kingdom VAT
Calculate the amount of VAT by choosing the rate that suits you and apply
the following formula:
The amount of excluding VAT x (VAT rates/100)
The amount of tax (including VAT) is as follows :
The addition of the Amount excluding VAT + VAT amount

II.

Comparison between the value added tax in the United
Kingdom and in Viet Nam
1. The similarity between the value added tax in the United Kingdom and
in Viet Nam.
- Tax rate: Similar to the VAT in the United Kingdom, the law on value

added tax of Vietnam currently also stipulates three kinds of tax rates: 0%, 5% and
20%.
The 0% tax rate applies to exported goods and services including processed
goods for export; activities of construction and installation of works in foreign

countries and works of export processing enterprises; goods sold to duty-free
shops; goods and services not subject to export VAT.
The tax rate of 5% for goods and services such as fertilizers, insecticides and
growth stimulants for animals and plants; equipment, machinery and specialized
tools for medical; unprocessed forest products (except wood and bamboo shoots) in
the commercial business stage; scientific and technological services; etc.
The 20% tax rate applies to goods and services like gold, silver, precious
stones, brokerage services, etc.
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Moreover, some goods and services are exempt from VAT or outside the VAT
system in Viet Nam. The followings are some examples of this kind of goods and
services:
+ Products of cultivation, husbandry, aquaculture, which have not yet
processed into other products or just processed by ordinary organizations,
individuals that produce and catch by themselves and sell at the import stage.
+ Products are animal breeds and plant varieties, including breeding eggs,
breeding animals, seedlings, seeds, sperm, embryos and genetic materials.
+Irrigation and drainage; plowing and harrowing the land; dredge inner
canals and ditches in service of agricultural production; Agricultural product
harvest service.
+ Salt products made from sea water, natural rock salt, refined salt and
iodized salt.
+ State-owned houses sold by the State to current tenants.
+ Life insurance, student insurance, pet insurance, crop insurance and
reinsurance.
+ Credit extension services; securities trading; capital transfer; derivative
financial services, including interest rate swaps, forward contracts, futures, foreign
currency options and options and other derivative financial services as prescribed

by law. - Medical services, veterinary services, including medical examination and
treatment, preventive services for humans and animals.
+ Public postal, telecommunications and Internet services universalized
under the Government's program.
+ Public services on sanitation, water drainage in streets and residential
areas; maintenance of zoos, flower gardens, parks, street greenery and public
lighting; funeral service.
+ Maintenance, repair and construction with capital contributed by the
people, humanitarian aid capital for cultural and artistic works, public works,
infrastructure and houses for social policy icon.
+ Teaching and vocational training in accordance with the law.
+ Broadcasting radio and television with state budget capital.
….
- Tax base: The tax base in both countries include the unit price excluding
VAT, the quantity and the VAT rate.
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2. The difference between the value added tax in the United Kingdom and
in Viet Nam.
The United Kingdom

Tax
payer

Tax
bearer

Tax rate

Tax
incentive

Viet Nam

Businesses with a turnover Organizations and individuals that
of more than £85,000 must produce ,trade and import taxable
register to pay and charge goods and services are taxpayers.
VAT on the products and
services they buy and sell.
Objects subject to value added tax are
The tax bearer can not be goods and services used for
found because tax can be production, business and consumption
transferred in the UK.
in Vietnam, except for those not
subject to tax under the provisions of
the law on value added tax and law
documents
guiding
the
implementation.
The standard rate of VAT in The standard rate of VAT in Viet Nam
the UK is currently 20%
is currently 10% ( the other tax rate in
Viet Nam are 0%, 5% and 20% as
mentioned above, which are similar to
VAT in the UK) applied to industrial
products,
infrastructure,
tourism

products and related services, … for
instance.

The VAT in the United In Viet Nam, besides tax exemption,
Kingdom has the tax there are also VAT deduction and VAT
exemption.
refund.
- VAT deduction:
+ Input tax on goods and services used
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for the production and trading of
goods and services subject to valueadded tax is fully deductible.
+ The input tax on goods and services
used
simultaneously
for
the
production and trading of goods and
services subject to value added tax and
not subject to value added tax shall be
deducted from the input tax amount of
goods only , services used for the
production and trading of goods and
services subject to value added tax.
+ The tax deduction of input tax on
purchased agricultural, forestry and
aquatic products does not apply to
cases where these products are used as

raw materials for production or
processing of exports.
- VAT refund:
+ If an enterprise’s input VAT exceeds
its output VAT during 12 consecutive
months, it can claim a refund from the
authorities.
+ In certain cases (e.g. exporters
where excess input VAT credits
exceed 300 million VND), a refund
may be granted on a monthly/
quarterly basis. Newly established
entities
in
the
pre-operation
investment phase may claim VAT
refunds on a yearly basis or where the
accumulated VAT credits exceed 300
10


million VND.
+Newly established entities and
certain investment projects which are
in the pre -operation stage may be
entitled to refunds for VAT paid on
imported fixed assets based on shorter
timelines than normal, subject to
certain conditions.

III.

Lessons for Vietnam

The efforts of the Ministry of Finance and the General Department of
Taxation has been recognized by the business community, society and the World
Bank (WB): In 2017, Vietnam's business environment was assessed by the World
Bank to increase 14 places, standing 68/190 economy; In particular, Vietnam's tax
payment index increased to 81 levels. This is the first time Vietnam has risen to the
position of 86/190 countries and ranked 4th in the ASEAN region after Singapore,
Malaysia and Thailand. In 2018, although the tax payment index was reduced by 45
levels compared to 2017 (131/190), the decrease in grades was due to policy factors
that changed to tightly control the VAT refund, but on the defensive side. Tax
payment procedures related to tax agencies are only 17 hours per year; 1.42 hours
is also a relatively high reduction compared to the region.
To continue promoting the achievements and bringing the tax policy to
contribute to restructuring the national financial system towards the goal of fast,
comprehensive and sustainable development; We propose the most basic solutions
to continue perfecting the synchronous tax policy system, thereby taking part in
restructuring the state budget revenues, ensuring and promoting economic
development.

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1. For Tax Rate
According to the Ministry of Finance, the reference from international
experience shows that, in the context of rising public debt in countries including
developed countries, countries tend to restructure State budget revenues in the

direction of Increase revenues from indirect taxes. Specifically, to increase revenue
to offset the decline in revenue due to the reduction of corporate and personal
income tax, the countries turned to increasing consumption tax including value
added tax and excise tax. In addition, Vietnam's current value-added tax rate is still
quite low, not in line with international practices. Therefore, we can take VAT
increase into consideration.
● Raise VAT from 10% to 12% from 2020
● Raise VAT from 12% to 14% from 2021

2. For tax bearer
As we all know, VAT is a typical indirect neutral tax. At each stage of the
production process, the tax payable is transferred to the next stage until the final
consumer. So it does not affect the business decision of the business. In theory, so,
because if these stages are interrupted, ie if there are certain cases that are listed as
subjects not subject to VAT, the advantage of avoiding duplication of taxation will
no longer matter. At this time, the enterprise does not have to declare and pay
output tax but does not declare input tax withholding. This makes it difficult to
predict the effects of taxes on business operations, so those who are not subject to
VAT should be limited to a limited number of cases.
Article 5 of the VAT Law provides for 25 groups of goods and services not
subject to tax. Such numbers are too many, while the goal of the VAT policy is to
expand the taxable area and narrow the clue. Some products included in this
category are still unreasonable, not really encouraging export, causing disruption in
tax collection and difficulties for enterprises. Take an example that is machinery
equipment, specialized means of transport which cannot be produced at home and
are imported to create fixed assets for enterprises, etc. so far, they have not been
subject to VAT, It is thought that when applying this tax law, in the context of our
country's economy still facing many difficulties, most businesses have little capital
so this provision will help businesses not have to spend an amount of advance
capital. However, nowadays, when the economy is growing, the forms of raising

capital for businesses are more and more convenient, the taxation of this item will
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not only make the tax law unpopular. Often, but also cause disruptions to the
following stages, complicated in the tax calculation of the business.

●
●
●

We suggest that:
Reducing the number of groups of goods and services not subject to VAT to
ensure the continuity of VAT
Gradually reduce the tax rate to 5%, aiming to uniformly apply a tax rate of
10% (and be adjusted to 12-15% according to the schedule)
Abolishing the regulation that the subjects do not declare and calculate tax
(goods and services for domestic consumption: excluding the payment of
output VAT but deducting the input VAT - deformation of the 0% tax rate)

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REFERENCE

1.

"Value-added tax definition and meaning | Collins English Dictionary. ''
www.collinsdictionary.com.

2.

"value added tax | Definition of value added tax by Lexico. '' Lexico
Dictionaries | English.

3.

Introduction to VAT". HM Revenue and Customs.

4.

"The UK's VAT Rate Explained". Kash Flow. Retrieved 3 November
2013.

5.

Victor, Adam (31 December 2010). "VAT: a brief history of tax". The
Guardian.

6. "VAT Output Tax Toolkit" (PDF). HM Revenue & Customs. July 2013.
Retrieved 3 November 2013.
7.

"Rates of VAT on different goods and services". HM Revenue and
Customs.

8.

"VAT relief for parcels entering UK 'reduced'". BBC News. 1
November 2011.

9.
/>10. “Thue VAT cua Viet Nam o dau so voi cac nuoc tren the gioi”. NDH,
17 August 2017.

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