Asking on here because I'd like it in layman terms as opposed to from a web page really. Sure VAT is whacked onto clothing/cosmetics and other such 'luxuries' but overall it ends up in the government's pocket, right? How does this happen, does a company pay the chunk of VAT directly to the government and when we buy the goods the VAT is included in the overall price that is given to the manufacturer/seller? Basically, I have a diagram like the one below. As you can see there is net taxes which are a withdrawal. My logic is that VAT wouldn't increase net taxes because its not charged on income like a tax is it, its charged on what we buy? So we will be paying more for what we buy, which in turn goes to the government via tax but through companies as opposed to individual people?