VAT criticisms?

[MWParticipant @mw27036]

I think this certainly belongs solely as a forum topic in the tea room, as it has hardly anything to do with engineering, but it is a question that vexes me slightly, as far as I can tell nobody seems to notice it.

My problem chiefly is with VAT, why does it exist, or why at least are it's flaws ignored?

Yes, it generates an awful lot of money, and I've argued with my mother over this as she is a book keeper and knows therefore more than I do about it. She defends it on the basis that it generates a lot of tax revenue, whereas I disagree on the principle of it, we existed for an awful long time without it and apparently did just fine, it was just called "income tax" in one form or another, fair enough I suppose.

Let me start from the beginning, so apparently it's an "output" tax, so anything you make as a business has to be taxed upon this, however the cost of which is simply handed on to the customer, so in practice it is a consumption tax, purely because the principle didn't seem to anticipate that businesses would do this?

Anyway, so you can reclaim this if it was goods that were "needed" by a business, under that title a lot can be justified, but only for businesses who are VAT registered (income of £70k+) can do it, you are not allowed to do it if you are a smaller business. (If you still believe that's a trivial amount, it isn't if at 20% of all expenditure was reclaimed, that's a large advantage they are getting and they simply hand the tax cost of the output onto the customer)

Trouble is, having worked at a few places, it is the length and breadth of the owners and managers of these blue chip businesses, go to, in order to justify anything to reclaim VAT on, including a large number of meals out, houses they personally buy, or other such outings or personal spending. Not really what i'd call a sundry of day to day running like most people would think. (Some of the items I've named such as housing is not VAT applicable, but they certainly were classed under business expenditure and wrongly so, but theres nothing we can do about that).

So I've hence come to term it a tax on the poor, simply because it would seem richer and more resourceful people can find ways of legally avoiding paying it. It seems to bolster large businesses whilst punishing smaller firms. And as a consumer, you have no choice but to pay it.

Anyone else feel the same here? It seems to be a law that was quietly passed under the carpet without any chance to review it. We might make a lot of money out of it, but i'd rather they just said it was a tax, and more importantly one that everybody paid on a level playing field rather than ifs and buts letting the rich off national responsibility.

Michael W

Edited By Michael Walters on 14/12/2016 14:52:21

[MWParticipant @mw27036]

[Brian HParticipant @brianh50089]

I agree with you entirely and also think that 20% is far too high. It should be no more than 10%, that way there would be far less incentive to evade it.

[An OtherParticipant @another21905]

This is just a comment wrt what Michael wrote above – i can (just about!) remember VAT being introduced (in the UK). I seem to remember that before that we had 'purchase tax' (not income tax – we've always had that ), but when they introduced VAT, there was some fanfare about it replacing purchasing tax, but it never really happened. The existing purchase tax was simply added to the price of whatever it was, then VAT calculated on the cost of the whole thing. I can't remember any fuss about this at the time, but it always struck me as being fraudulent.

For me, its a good reason to 'evade' taxes – despite all the media fuss, 'evasion' has never been illegal, but avoidance is (I thinks its that way round?). The principle being that if it is not necessary to pay a tax, then you don't have to pay it, but if you should pay it, and don't, that is illegal. I believe there was a court case about it long ago, but I don't know the details. In case, I think the whole tax system has become too complicated, cumbersome and liable to abuse.

[Ian PParticipant @ianp]

Death and taxes are inevitable.

Yes we managed for a long time without a tax called VAT. What we had previously was 'Purchase' tax that was added to products that we bought. That was also an imperfect tax system and VAT was introduced to simplify things.

I presume that Income tax that you mention is now referred to as PAYE.

I dont think this forum is the best place to discuss finances and politics, as a layman I get my knowledge from the BBC and similar sources and I am certainly not a taxation expert but I think every system that governments can dream up, all will have loopholes that a tiny portion of the population could exploit.

Ian P

[michael pottsParticipant @michaelpotts88182]

Vat is 'Value Added Tax'. It replaced Purchase Tax when we joined the EEC a long time ago. Purchase tax had its own anomalies and was a pain to administer.

[MWParticipant @mw27036]

Posted by Ian Phillips on 14/12/2016 14:57:40:

I dont think this forum is the best place to discuss finances and politics, as a layman I get my knowledge from the BBC and similar sources and I am certainly not a taxation expert but I think every system that governments can dream up, all will have loopholes that a tiny portion of the population could exploit.

Ian P

Sorry Ian, I do mean well to make sure it remains a civil (and specific) debate rather than an ambiguous attack on ideology, I don't mean for that, it just seems like a very inconsistent law and one where it would deter many people from trying to start a business in the first place.

When it gets to large chains such as supermarkets, I could hardly imagine how huge an advantage this gives them and all the more money to do down smaller competition.(Some are so big, they could probably sell everything at a loss for a number of years and still remain afloat) 

So in the end it may actually damage social capitalism rather than promoting it. If you don't make a profit at your small sandwich shop for example, you're dead in the water.

Some people may argue that large amounts reclaimed from meals out could be justified if it related to what you do as a business, I agree with that however, this was done in the context of large engineering works, don't know about you but I don't consider this fits in the context of nuts and bolts.

Michael W

Edited By Michael Walters on 14/12/2016 15:13:44

[Peter G. ShawParticipant @peterg-shaw75338]

AN Other.

It's Tax Evasion that is illegal, tax avoidance, despite what certain people would have us believe, is perfectly legal.

The court case that you describe was one where m'learned judge, James Avon Clyde, Lord Clyde Kc DL said in 1929:

"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

In other words, shelter as much as you legally can from the Inland Revenue (now HMRC). Where the problem arises is that certain schemes, for the seriously rich, which doesn't include me, are being challenged for legality in the courts. This is where the notion that tax avoidance is illegal comes from. Categorically, tax avoidance is not illegal, tax evasion is. After all, the majority of my savings are in ISA's which is a method of sheltering them from tax, ie tax avoidance. I also have bus pass, although now that the bus service through our village has disappeared, it's not much use, but even this could be called a form of tax avoidance. Same with free prescriptions, eye tests etc.

Regards,

Peter G. Shaw

[MWParticipant @mw27036]

Posted by Peter G. Shaw on 14/12/2016 15:17:55

In other words, shelter as much as you legally can from the Inland Revenue (now HMRC). Where the problem arises is that certain schemes, for the seriously rich, which doesn't include me, are being challenged for legality in the courts. This is where the notion that tax avoidance is illegal comes from. Categorically, tax avoidance is not illegal, tax evasion is. After all, the majority of my savings are in ISA's which is a method of sheltering them from tax, ie tax avoidance. I also have bus pass, although now that the bus service through our village has disappeared, it's not much use, but even this could be called a form of tax avoidance. Same with free prescriptions, eye tests etc.

Regards,

Peter G. Shaw

Thanks for commenting Peter,

I do agree with you that you should take advantage of what you are entitled to, but what we are entitled to needs to be fair and justified and that is decided through debate in theory.

It matters not if what you are doing is technically legal, traditionally in the british law system we take a dim view of cheating the law on a technicality and hence a judges discretion still applies, regardless of whether or not what was done was technically legal.

Michael W

[MuzzerParticipant @muzzer]

Talking of which, I had a rantlet yesterday about DHL helping themselves to £11 admin fees for charging me £4 VAT on a small purchase.

I've just finally picked up the package from the Inpost lockers at the local Morrisons and am further infuriated to see that the VAT was applied not just to the value of the goods themselves but also the freight charges themselves. I thought that surely the VAT should be chargeable only on the actual goods? And to add insult to injury to Scotsman's Nightmare, Neil pointed out that I only just scraped over the £15 threshold for VAT to be applied to start with.

In fact, the law says otherwise. Postal costs in incoming goods are charged at the std rate, despite the fact that the majority of the costs were incurred outside the UK and prepaid in the originating country. You also pay VAT on any duty incurred.

Ho hum.

[Raymond AndersonParticipant @raymondanderson34407]

VAT is one tax that I just hate with a passion. I go out and buy something i'm charged VAT, i'm using money to pay for it that iv'e already paid tax on !!! , so in effect im taxed twice. It's a ******* rip off there should be no *******VAT. ******* rip off Britain, and the government are the biggest culprits.

[KWILParticipant @kwil]

VAT is a value added tax and value is added when they pack and send it too you,

Raymond,

You have forgotten petrol, excise duty + vat all paid from your already taxed income. Do not say increase income tax, because some of us might not want to offset VAT losses for others.

[MWParticipant @mw27036]

Posted by Muzzer on 14/12/2016 15:24:14:

In fact, the law says otherwise. Postal costs in incoming goods are charged at the std rate, despite the fact that the majority of the costs were incurred outside the UK and prepaid in the originating country. You also pay VAT on any duty incurred.

Ho hum.

Thanks Muzzer,

This is a theoretical problem I've pondered for a very long time but not openly spoke about before this and for me it seems morally inconsistent as far as national obligations like taxes go, I would rather it was openly declared as a basic goods tax applied for everybody.

I'm personally appalled by the behaviour of our public officials when it comes to giving generous tax deals to large foreign firms to move here, when everybody else within the borders has no choice in the matter. Double standards comes to mind, rather than a cohesive and responsive society.

I personally would rather a political system similar to Switzerland where young people do national service and citizens can vote on a large number of laws effecting them, rather than a large body of individuals who may well be lying through their teeth to their own constituencies whilst personally favouring companies that nurture them and vote in their favour rather than the people they represent.

(Explaining the national service part a bit more; I think this is beneficial to young people who often lack the ideas of what they want to do at a young age, and therefore would be good for their self esteem, social skills and practical abilities that are easily transferable to a private employment environment. Theres a lot of roles people could fill so this wouldn't exclude disabled people or be totally military in nature of work.

I felt, as a mere 24 year old today, that when I left school after my A levels at 18, I was effectively "dumped" out the door and left to fend for my own two feet with qualifications that aren't worth much anymore. It should've made me very bitter about this country but despite that i'm still proud of it and think this is a good idea that could circumvent my bad experience that is probably a very common story today, many young feel left out of society). I think even if you made it voluntary, it would still be oversubscribed, that's how needed it is.

So I think therefore that a future shape of democracy should be one where we, the people, are allowed to vote on more matters, domestic matters, in a kind of (but not fully) "direct" democracy, like the old fashioned greeks and icelandics intended!

Everyone has got a point to make and this is just my own opinion.

Michael W

Edited By Michael Walters on 14/12/2016 16:07:03

[roy entwistleParticipant @royentwistle24699]

How can they warrant putting VAT on the excise duty on petrol ?

[Anonymous]

The VAT system is so complicated that loopholes are inevitable. The more the chancellor tries to plug holes, the more holes he creates elsewhere. At least my VAT returns are relatively simple; but that doesn't stop the chancellor mucking about with them. May be I should invoice him for the time wasted, plus VAT of course!

When VAT was introduced in 1973 the rate was 10%, then it dropped to 8%. And then, in 1975, we had the totally bizarre situation of some electronic components being rated at 8% and some at 25%. It depended upon an arbitrary decision as to whether the component was deemed to be used in industrial (8%) or luxury, ie, consumer goods (25%).

There's no system in existence that a politician can't make worse.

Andrew

[Raymond AndersonParticipant @raymondanderson34407]

KWIL, Yes that's one I forgot to add , Excise duty. Charlie Claw has got us well and truly screwed to the floor.

[Neil WyattModerator @neilwyatt]

Posted by Michael Walters on 14/12/2016 14:45:25:

I disagree on the principle of it, we existed for an awful long time without it and apparently did just fine, it was just called "income tax" in one form or another, fair enough I suppose.

Before VAT we had purchase tax, which was levied as a flat rate on all sales and you had to pay all of it to the exchequer. With VAT you can claim back the VAT you pay on purchases and only pass on to the treasury the VAT on your markup or services provided (why it's called 'value added&#39. Small businesses and sole traders can use the fixed rate scheme which lest them claim a fixed percentage instead and is very easy to use.

Almost every economy taxes sales since the days of the Babylonians, so while some systems are easier to run than VAT they may or may not be fairer and whatever is used you will be paying a wedge over to the Chancellor.

Feel some sympathy for the United States every state has a different arrangement for national purchase tax plus state tax and the rate often varies by where the BUYER is rather than the seller is. The mind boggles at how they keep track of that!

Neil

[Russell EberhardtParticipant @russelleberhardt48058]

If I remember rightly before VAT we had purchase tax at 25 % so VAT is cheaper for the consumer.

Russell.

[Neil WyattModerator @neilwyatt]

Posted by Michael Walters on 14/12/2016 15:08:23:

, it just seems like a very inconsistent law and one where it would deter many people from trying to start a business in the first place.

For small businesses, VAT is optional if their turnover is less than £83,000, you can go on the very simple fixed rate scheme with a turnover under £150K and don't have to leave it until you reach £230K,

These arrangements are specifically to encourage small businesses, the trouble is until you take some advice on setting up a business, you generally won't know this.

Neil

[norman valentineParticipant @normanvalentine78682]

The government needs to generate income to pay for the cost of running the country. They do that through taxes. What does it matter what they call it, VAT, purchase tax, income tax, excise duty et al? We have to pay it whatever. I have lived in a country where few people paid taxes, as a result there were few services. In the UK we should be happy that we live in one of the most highly developed countries in the world, and we have to pay for it.

[Neil WyattModerator @neilwyatt]

Final observation – if there was no VAT, or any other tax was abolished, then the Government would either have to raise another tax or reduce spending. I won't comment on whether or not spoending should go up or down as that's a very political debate.

 

I will comment on the principle of VAT. It may be flawed but the principle is that 'essentials' like food or newspapers are 'zero rated' whilst 'non-essential goods' are liable for higher rates of VAT. It is therefore a 'progressive' tax in that poor people who spend most of their income on food and accommodation pay less VAT as a proportion of their total spend, compared to the better off who spend a greater proportion of their income on 'luxuries' and therefore more VAT. That this is fair is the consensus across all major political parties and should not be a controversial point to make.

Naturally there are flaws in the system – see the debates about VAT rates for domestic energy and feminine hygiene products which most people would agree are 'essentials' for those who need them.

 

Please keep clear of party politics.

Neil

Edited By Neil Wyatt on 14/12/2016 16:47:01

[Maurice Cox 1Participant @mauricecox1]

I recall from a TV documentary, ages ago, that Income Tax was introduced as a "temporary measure" to pay for some war or other. It's been rather a long time now for "temporary" hasn't it!

Maurice

[Brian WoodParticipant @brianwood45127]

It was introduced at a very modest rate by today's standards to cover the cost of the Napoleonic War.

Compare and contrast

Brian

[NJHParticipant @njh]

Yep – I think it was Benjamin Franklin who said that the only things certain in life are death and taxes – so it's not a new concept!

The money you earn is taxed, the money you spend is taxed and the interest you earn on any money that you save is taxed. ( although if you look at the rates of interest on savings accounts at the moment neither you nor the government makes a lot from that!)

Hey there is nowt that you can do about it so just relax, try not to worry and enjoy life whilst you can.

Norman

[JAParticipant @ja]

True, income tax commenced during the Napoleonic Wars along with a number of other taxes including one on clocks which effectively destroyed the UK clock industry.

A couple of years ago the Government announced it had paid off the final loans for WW1. What they had actually done was to bundle a lot of old loans which included WW1 loans into one new loan to gain advantage of lower interest rates. Also included were loans from the Napoleonic Wars. I guess in about 30 years time these loans will be repackaged again and the Government will make the same announcements.

JA

[Author]

Posts