VAT (value added tax) is a tax on spending and is therefore known as an indirect tax. While the VAT imposed in each country varies, in general as a tax on expenditure, the burden of VAT is intended to fall just on consumers. However, it is paid on all transactions by all VAT-registered firms, so how can this be? The way it works is that the firm pays VAT on all the goods and materials it buys and it also charges VAT on all the goods it sells. At the end of each month or quarter, the firm then works out all the VAT it has paid out to its suppliers and all the VAT it has received from its customers.