VAT criticisms?

[Neil WyattModerator @neilwyatt]

Posted by Michael Walters on 14/12/2016 20:45:22:

It pains me to disagree and to quote Wikipedia but apparently the evidence doesn't stack up for VAT being a socially progressive tool. Research has shown the poor spend twice the bracket of their income on VAT than the top percentile. It would appear to be more taxing on the poor if you believe what the research suggests, there are plenty of citations on this section so it appears to be a well founded claim. See criticisms section.

**LINK**

Michael,

As has been said by someone else, if you start a discussion on a controversial subject, you must not complain if it starts a heated discussion.

I looked up your link, and to be honest what it says is whether VAT is regressive or progressive depends on exactly how the tax is implemented:

The "value-added tax" has been criticized as the burden of it falls on personal end-consumers of products. Some critics consider it to be a regressive tax, meaning that the poor pay more, as a percentage of their income, than the rich. Defenders argue that relating taxation levels to income is an arbitrary standard, and that the value-added tax is in fact a proportional tax in that people with higher income pay more in that they consume more. The effective progressiveness or regressiveness of a VAT system can also be affected when different classes of goods are taxed at different rates. To maintain the progressive nature of total taxes on individuals, countries implementing VAT have reduced income tax on lower income-earners as well as instituted direct transfer payments to lower-income groups, resulting in lower tax burdens on the poor.

The only reference given for the paragraph above is a document on the implementation of the Singapore General Sales Tax which explains it was designed to be progressive as there was fear from the outset that it would be criticised as a regressive tax.

Further down that section it states that research shows that moving to VAT from a purchase tax generally has the effect of reducing prices, which goes against what some other posters have claimed.

Neil

[Russell EberhardtParticipant @russelleberhardt48058]

Posted by Clive India on 15/12/2016 09:24:17:

Let's imagine the traders could expect to sell the loco for about £6k.

1/6 of the selling price is VAT = £1k

No. The trader only has to charge VAT on the difference between his buying and selling price the VAT Margin Scheme.

Russell.

[Clive IndiaParticipant @cliveindia]

Posted by Russell Eberhardt on 15/12/2016 09:42:00:

Posted by Clive India on 15/12/2016 09:24:17:

Let's imagine the traders could expect to sell the loco for about £6k.

1/6 of the selling price is VAT = £1k

No. The trader only has to charge VAT on the difference between his buying and selling price the VAT Margin Scheme. Russell.

I'm confused.
If I bought a second hand lathe for £5k + VAT I would expect to pay £6k with a VAT rate of 20%

If it's on the margin I could not work it out as I do not know what the seller bought it for.

[Neil WyattModerator @neilwyatt]

Posted by Russell Eberhardt on 15/12/2016 09:42:00:

Posted by Clive India on 15/12/2016 09:24:17:

Let's imagine the traders could expect to sell the loco for about £6k.

1/6 of the selling price is VAT = £1k

No. The trader only has to charge VAT on the difference between his buying and selling price the VAT Margin Scheme.

Russell.

This is a scheme you can choose to be on if you mainly deal in used goods.

N.

[pgk pgkParticipant @pgkpgk17461]

Posted by Neil Wyatt on 15/12/2016 09:16:09:

> As to vat – the original concept was that it would pay for europe… but like all taxes gets used for whatever Gov wants

So many misconceptions. If that was the case, they would have added it on top of purchase tax, not replaced purchase tax.with it.

N.

As I understand it the original purchase tax was a tax on 'luxury' items and a form of import duty (as in making import type goods more expensive to the end user on top of the acual import tariff (so Gov could argue they weren't blocking those imports). White goods were the big thing but it also destroyed UK manufacture/salesof them. Membership of the EU and it's intent to control the flow of goods and it's own (absurd) costs meant a need to increase eu revenues, It was public antagonism that ended up with VAT being zero rated on food. kids clothes, books and health care. I believe they are 'vatted' in many euro countries. There's also a rule about not being able to de-vat classes of items once vatted and a minimum rate to which it can be reduced once it's greater-than? It's also part of the group of stealth taxes… give folk the belief they keep more of their earnings.

Despite the so-called harmonisation of europe there's a lot of 'cons' about. I know that in my past trade one could find the costs of some items cheaper in other euro countries than here.- even countries with higher vat rates – because the manufacturer sold them cheaper there than here (as in for as much as the market will bear, nowt to do with costs of manufacture). But one could't legally import and resell because the labeling was in Danish or Romanian or whatever

[ZebethyalParticipant @zebethyal]

Just had a quick read of the VAT margin scheme, and it only appears to apply to a few select cases, second hand items being one of them.

I believe the case being made by Clive implies a new item being resold as new by the vendor, in which case the second hand argument does not hold true and the VAT margin scheme cannot be used – otherwise every purchase of items used for resale could be argued to be second hand and therefore subject to the margin VAT of 16.67%.

I had a similar issue a few years back where I was looking to re-sell items made by a colleague of mine. I was VAT registered, he was not, I could not make any profit on selling the item for the same price as him, even with the low price that he was selling items in bulk at to me, purely because I had to add VAT to all items that I sold, whereas he did not.

A couple of years ago I worked out that for £2.00 of gross salary spent on petrol, £1.80 goes to the government as Income Tax, NI, VAT, duty, etc, £0.20 was the actual cost of the petrol (varied slightly dependant on the individual's tax band) – I am sure things have become much worse since then.

[pgk pgkParticipant @pgkpgk17461]

Posted by Zebethyal on 15/12/2016 10:30:49:….

A couple of years ago I worked out that for £2.00 of gross salary spent on petrol, £1.80 goes to the government as Income Tax, NI, VAT, duty, etc, £0.20 was the actual cost of the petrol (varied slightly dependant on the individual's tax band) – I am sure things have become much worse since then.

Even worse when you look at one's own gross earnings. Charge yourself out at an hourly rate, pay the vat and your running costs off that to get to keep 20% net profit on which one paid higher rate tax (if earning enough) of 40% and then vat on stuff one bought and one was down to roughly having the real purchasing power of 10% of one's gross – which us why one ended up having to charge my customers silly money for what i actually did and employing loads of staff to get a small bit of their gross for myself.

[MuzzerParticipant @muzzer]

It seems that some tradesmen can avoid charging you VAT on their services perfectly legally by keeping their turnover (I think) under £77kpa. They do this by getting you to buy the raw materials yourself (in the case of a builder) and only charging you for their labour etc, to stay under the threshold. Obviously you have to pay VAT on those materials you buy yourself but don't have to pay the builder VAT on top of their payment. I've not used that arrangement myself but I understand it's not uncommon and is perfectly respectable.

Murray

[Stuart BridgerParticipant @stuartbridger82290]

Not VAT related, but more general tax comment. I heard the following last week went talking about the super rich paying fair tax. Would you rather own a Ferrari and drive it on an unmaintained road or own a Porsche and drive it on a smooth road. Interesting analogy I thought.

[ZebethyalParticipant @zebethyal]

Buying materials yourself avoids being overcharged for them by the tradesman who may just quote some random amount for materials, but at the same time not everyone has access to trade prices on building materials.

The difference in prices between say Wickes (anyone) and Selco (trade only builders merchants) can be quite significant on things like plaster, plasterboard, bricks, cement, etc, even after adding the VAT on the Selco prices, less so on some other items.

Many trades people do their best to avoid VAT and Income Tax by doing as many jobs as they can for cash and only declaring what they think they can get away with.

[MuzzerParticipant @muzzer]

I'm paying in a traceable way, so I can be fairly certain the VAT will be declared. As ever though, the commercial arrangement with a builder is an ongoing game – cost of goods, what was quoted, variations in scope etc. Mind you, as a former consultant myself, I know about that game from the other side of the fence.

[pgk pgkParticipant @pgkpgk17461]

Local builders here order the materials and leave you to pay the invoice.. a bizarre but useful system where they get it ordered trade and invoiced in your name to pay direct to supplier.

[Sam Longley 1Participant @samlongley1]

Posted by pgk pgk on 15/12/2016 08:20:56:

As to vat – the original concept was that it would pay for europe… but like all taxes gets used for whatever Gov wants.. and as an unwieldy tax it creates jobs. It used to take me 2 solid days every quarter to work through my vat return for the privilege of paying £30K to the coffers.

When my 2 business were active. I had about 60 active customers & over 300/400 invoices per quarter.( Bear in mind they were in construction & involved a lot of alteration retentions etc not just simple invoices) It took about 20 minutes to prepare my VAT return & about the same to ensure that I had correctly posted them on the HMRC website for each company- staggered 1 month apart

If you took 2 days then i would suggest that you were leaving your accounts to the last minute or were very disorganised.The infrequent visits from the VAT inspector were never a problem if books were kept in order. I have never had any major problems with VAT & visits have never lasted more than a day every 4-5 years or so. I now only have one company & work as a consultant . The last inspection was 9 years ago & lasted 2 hours.

I like VAT as a tax , not so much as for the fact that I have to pay it, but for the fact that it is by far the easiest tax for me to operate & by far the easiest for the HMRC to collect. If it was not for the fact that it tends to be a greater proportion of the poorer persons income ( because they have to spend all there income & have none spare in comparison to the wealthy who do not have to spend all their cash so the statistics are distorted ) I would rather they increased VAT & did away with PAYE & the hassle & work that creates. Collecting tax from wages really is a full time job. If there was a way for the current non tax payer to reclaim VAT it would be great to pay more VAT & not income tax. It would save fortunes in unnecessary bureaucracy

[Old CrockParticipant @oldcrock]

They should abolish all current taxes and bring back the Hearth Tax and Window Tax.

My workshop has neither!

Satchll

[John Stevenson 1Participant @johnstevenson1]

Some think they are hard done to.

Do you realise that today I have had to spend nearly 5 months Old Age Pension to buy a new fork lift truck.

How does this government expect anyone of frail circumstances to work without a fork lift truck.

Did get one pleasant surprise though in that the batteries out of the old truck weighed in at 500 kg.

[Ady1Participant @ady1]

The VAT threshold of 83k is very useful for the little guy but you need to watch for traps

If you sell a digital download for 1p to an EU customer then you have to register your business for VAT (eservices rules)

[pgk pgkParticipant @pgkpgk17461]

Posted by Sam Longley 1 on 15/12/2016 18:59:01:

Posted by pgk pgk on 15/12/2016 08:20:56:

As to vat – the original concept was that it would pay for europe… but like all taxes gets used for whatever Gov wants.. and as an unwieldy tax it creates jobs. It used to take me 2 solid days every quarter to work through my vat return for the privilege of paying £30K to the coffers.

When my 2 business were active. I had about 60 active customers & over 300/400 invoices per quarter.( Bear in mind they were in construction & involved a lot of alteration retentions etc not just simple invoices) It took about 20 minutes to prepare my VAT return & about the same to ensure that I had correctly posted them on the HMRC website for each company- staggered 1 month apart

If you took 2 days then i would suggest that you were leaving your accounts to the last minute or were very disorganised.The infrequent visits from the VAT inspector were never a problem if books were kept in order. I have never had any major problems with VAT & visits have never lasted more than a day every 4-5 years or so. I now only have one company & work as a consultant . The last inspection was 9 years ago & lasted 2 hours.

I like VAT as a tax , not so much as for the fact that I have to pay it, but for the fact that it is by far the easiest tax for me to operate & by far the easiest for the HMRC to collect. If it was not for the fact that it tends to be a greater proportion of the poorer persons income ( because they have to spend all there income & have none spare in comparison to the wealthy who do not have to spend all their cash so the statistics are distorted ) I would rather they increased VAT & did away with PAYE & the hassle & work that creates. Collecting tax from wages really is a full time job. If there was a way for the current non tax payer to reclaim VAT it would be great to pay more VAT & not income tax. It would save fortunes in unnecessary bureaucracy

And there you have it.. entirely different businesses. I had a database of some 30K clients with some 3K unique ones seen every year but some 10K+ invoices and many hundreds of different products and services stocked. Yes it was all computerised and output tax was a press of a button…although it still needed some cross-check. Input taxes and spreadsheet checks were the majority time… making sure I was claiming all those inputs. Every few years we got visited and it always took the full day.

[Sam Longley 1Participant @samlongley1]

Posted by pgk pgk on 16/12/2016 04:19:28:

Posted by Sam Longley 1 on 15/12/2016 18:59:01:

Posted by pgk pgk on 15/12/2016 08:20:56:

As to vat – the original concept was that it would pay for europe… but like all taxes gets used for whatever Gov wants.. and as an unwieldy tax it creates jobs. It used to take me 2 solid days every quarter to work through my vat return for the privilege of paying £30K to the coffers.

When my 2 business were active. I had about 60 active customers & over 300/400 invoices per quarter.( Bear in mind they were in construction & involved a lot of alteration retentions etc not just simple invoices) It took about 20 minutes to prepare my VAT return & about the same to ensure that I had correctly posted them on the HMRC website for each company- staggered 1 month apart

If you took 2 days then i would suggest that you were leaving your accounts to the last minute or were very disorganised.The infrequent visits from the VAT inspector were never a problem if books were kept in order. I have never had any major problems with VAT & visits have never lasted more than a day every 4-5 years or so. I now only have one company & work as a consultant . The last inspection was 9 years ago & lasted 2 hours.

I like VAT as a tax , not so much as for the fact that I have to pay it, but for the fact that it is by far the easiest tax for me to operate & by far the easiest for the HMRC to collect. If it was not for the fact that it tends to be a greater proportion of the poorer persons income ( because they have to spend all there income & have none spare in comparison to the wealthy who do not have to spend all their cash so the statistics are distorted ) I would rather they increased VAT & did away with PAYE & the hassle & work that creates. Collecting tax from wages really is a full time job. If there was a way for the current non tax payer to reclaim VAT it would be great to pay more VAT & not income tax. It would save fortunes in unnecessary bureaucracy

And there you have it.. entirely different businesses. I had a database of some 30K clients with some 3K unique ones seen every year but some 10K+ invoices and many hundreds of different products and services stocked. Yes it was all computerised and output tax was a press of a button…although it still needed some cross-check. Input taxes and spreadsheet checks were the majority time… making sure I was claiming all those inputs. Every few years we got visited and it always took the full day.

So in the grand scheme of things the 2 days doing the VAT with the 1 days visit were proportionally minimal -compared with everything else- & not the burden that you suggested. Although a pain in the butt when busy !!!!!

[Neil WyattModerator @neilwyatt]

Posted by John Stevenson on 16/12/2016 00:35:46:

Some think they are hard done to.

Do you realise that today I have had to spend nearly 5 months Old Age Pension to buy a new fork lift truck.

How does this government expect anyone of frail circumstances to work without a fork lift truck.

Did get one pleasant surprise though in that the batteries out of the old truck weighed in at 500 kg.

Does that mean you can lift your wallet back up onto the bench now?

Neil

[CirclipParticipant @circlip]

No, It's to lift the bench back onto the wallet.

Regards Ian.

[Author]

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