GST vs. VAT Tax: What’s the Difference?

Updated on May 6, 2022

Paying your annual business taxes and thinking about your tax obligations may lead to the term “GST,” which you may not be familiar with. When you do some investigation, you’ll find that GST and VAT are extremely comparable. Is there a significant impact on your firm from the differences between the two taxes, VAT vs. GST? We’ll take care of you. With this tutorial, you’ll learn everything you need to know about the difference between VAT and GST for businesses in the United Kingdom.

What is VAT?

Value Added Tax (VAT) is an acronym for Value Added Taxation. When it comes to the purchase price of certain goods and services, a consumption tax is applied. Even if some goods and services are currently exempt from VAT or are taxed at a zero rate (meaning that the government does not currently charge VAT for these items but could in the future), the price of most goods/services is affected by VAT. Even though VAT is a tax, it is an indirect tax because it is not levied directly by the government on its customers. Instead, businesses collect the tax themselves before repaying it to the government.

What is GST?

Taxes on goods and services are collectively known as GST. In countries like Australia, India, Canada, New Zealand, Singapore, and Hong Kong, it’s a type of Value Added Tax. As a consumption tax, it is similar to the VAT in that it is imposed on the price of goods and services. There are hefty penalties for neglecting to register for GST, so don’t put it off if you find out your firm is subject to the tax right away. In Australia, GST is referred to as the Goods and Services Tax (GST).

GST and VAT difference

Many people confuse the terms “goods and services tax” (GST) with “value-added tax” (VAT). You might think of VAT as a sort of Goods and Services Tax, or you can think of GST as a type of Value Added Tax. UK-based enterprises may not have to worry about the changes in VAT/GST because it is unlikely to be applicable. Even if you don’t do a lot of business with countries that use GST, you should be aware of the following GST/VAT distinctions if your company has locations in those countries.

When it comes to the rate of taxation, VAT is often higher than GST when comparing the two. When compared to the 20% VAT rate in the United Kingdom, the GST rates in Australia (10%), Singapore (7%), and Canada (5%) are lower than the 20% VAT rate.

The products that aren’t taxed Some commodities that are exempt from VAT may not be exempt from GST, and the other way around. Precious metals, such as gold, are GST-free in Australia, however silver, palladium, and platinum are not in the UK.

The registration requirements for VAT and GST are also likely to differ between countries and countries, so it’s important to keep this in mind. GST registration is required if your annual GST revenue exceeds AUD75,000. The VAT threshold, on the other hand, is £85,000.

As you can see, VAT and GST have a lot of distinctions. In the case of VAT and GST, outsourcing your tax files to a qualified accountant may be a good choice, especially if you’re dealing with both VAT and GST at the same time.

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