What is VAT (value added tax)?

Registration becomes compulsory once annual taxable turnover crosses the threshold in the Act. Certain trades must register from their first day, whatever their turnover. Once registered, every taxable sale needs a tax invoice that shows the tax as its own line, not folded into the price. A monthly return reports the sales and the VAT on them.

You charge VAT on sales and pay VAT on purchases, and you settle the difference with the Department. The part that costs businesses money is the paperwork. To claim input VAT you must hold a valid tax invoice from a registered supplier. If the supplier bill is missing or wrong, you cannot make that claim.

Some supplies are zero-rated. This means they are taxed at nil, and you can still claim input VAT on them. Some are exempt, meaning they are outside the VAT system. Which schedule a product falls into is worth confirming with the IRD or your accountant.

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