Re: Make it attractive to pay tax
VAT starts simple, but soon gets complex...
All VAT Companies pay VAT on their purchases from VAT registered companies, and charge VAT on their sales. They then submit a VAT return detailing the total VAT collected, and total VAT paid. If they collected more VAT than they paid, then they must pass the extra to the tax man. If they paid out more than they collected then they get a VAT refund from the tax man.
Then there are a few additional rules to be aware of...
1. If the transaction is across EU member states, and you have the other companies VAT number, then VAT is not paid / charged.
2. Some things are zero rated, some things are VAT exempt. If you sell something thats zero rated, then you get to claim back the VAT you spent on producing and selling that thing. If something is VAT exempt, then you still have to pay the VAT to your supplier, but cannot claim back the VAT.
3. VAT flat rate schemes allow you to charge your customers VAT, but only pay part of that back to the Tax office. The assumption is that you have paid for some supplies, but under the flat rate scheme, you cannot claim back the VAT that you have paid for supplies.
Then there are the penalties if you get things wrong, combined with the enforcement powers when they think you got things wrong...