[Politics] VAT

[Neville's Breakfast]

The Telegraph certainly kept up their pro Brexit stance with the headline of VAT to be scrapped post Brexit, when all has really been suggested is a lower rate of tax on goods and services to offset the import duties from a WTO leave.

But of course VAT is associated with the EU, but a tax is a tax regardless of where it comes from.

That works both ways. A regressive sales tax is a regressive sales tax regardless of where it comes from. Wouldn’t it be good if an incoming progressive government were able to reduce sales tax to reduce inequality in the tax system and encourage spending ?

 

[Herr Tubthumper]

Depending on the changes, there are potentially huge costs to businesses having to update software/accountancy systems to deal with any changes.

Maybe it could be wrapped up in the huge costs to businesses to update for Brexit? The company I’m currently working for have put this at 60 million. In addition they have also had to build up a lab facility in Ireland to handle samples currently analysed in the U.K. in the event of a hard Brexit. I’m sure a bit of VAT on top won’t add much to the already huge unnecessary costs.

 

[giveusfalmerplease]

VAT is also regressive because anyone earning over 50k (i think) can claim back VAT on many things if they become VAT registered themselves but the poor saps (their customers) still have to pay it

 

[CheeseRolls]

Sales tax differs from VAT in that it is only applied when the goods are sold, not at each sub-stage. The advantage to a country applying no VAT, is that it can in theory reduce the cost of exports. I also wouldn't rule out the benefit here of being able to tax International Corporations at point of sale, although this isn't the only way to attack this.

The basic assumption here is that the country in question, still has a manufacturing base and that other countries looking to do a trade deal with a pariah state that reneges on existing deals, doesn't factor this in anyway and drive a hard bargain.

For those playing the regressive tax card, how else do you get the tax dodging classes to contribute anything? If you want a progressive tax system, focus on wealth, inheritance and offsetting/offshoring avoidance schemes.

 

[Weststander]

The beauty of a sales tax (rather than corporation tax on ‘profits’, or part replacing CT), is that Amazon, Google and Starbucks would have to truly contribute to UK taxes.

At the moment they profit shift virtually all UK profits to ultra low tax regimes overseas, which also gives them a huge competitive advantage here. Amazon for example can crush Waterstones and any other competitors who pay a true 19% on their entire profits.

 

[Weststander]

VAT is also regressive because anyone earning over 50k (i think) can claim back VAT on many things if they become VAT registered themselves but the poor saps (their customers) still have to pay it

They can’t do that.

The VAT legislation is very strict and closely policed. Only a legitimate business, with true supplies (sales), operating as a business with a view to a profit, can claim VAT back, and even then on purely business expenses.

 

[DumLum]

I can't see the financial black hole being filled by a rise in income tax whilst the Conservatives are in power?

Whoops

 

[DumLum]

VAT is also regressive because anyone earning over 50k (i think) can claim back VAT on many things if they become VAT registered themselves but the poor saps (their customers) still have to pay it

That's not how it works.
A small business with a turnover of 85k a year has to charge customers VAT and pass this on to the govenment. Yes they can claim the VAT back they paid on the stock they bought otherwise they would be paying the VAT twice. So many small businesses benefit from having a turnover less than 85k. Ballpark figure by 10% as rhey are not charging customers VAT.

Can sonebody explain why it's a regressive tax?
If you have almost zero disposable income you don't tend to buy many luxuries. Where as somebody spending £1000 a month on luxuries is paying £167 Vat.

 

[DumLum]

The beauty of a sales tax (rather than corporation tax on ‘profits’, or part replacing CT), is that Amazon, Google and Starbucks would have to truly contribute to UK taxes.

At the moment they profit shift virtually all UK profits to ultra low tax regimes overseas, which also gives them a huge competitive advantage here. Amazon for example can crush Waterstones and any other competitors who pay a true 19% on their entire profits.

I would welcome that, if that actually happened.

 

[Weststander]

That's not how it works.
A small business with a turnover of 85k a year has to charge customers VAT and pass this on to the govenment. Yes they can claim the VAT back they paid on the stock they bought otherwise they would be paying the VAT twice. So many small businesses benefit from having a turnover less than 85k. Ballpark figure by 10%.

Can sonebody explain why it's a regressive tax?
If you have almost zero disposable income you don't tend to buy many luxuries. Where as somebody spending £1000 a month on luxuries is paying £167 Vat.

I’m sitting on the regressive tax opinion fence, but it’s because:
1. Consumption (which carries VAT) by low earners is at greater proportion of their income, that for the wealthy. The wealthy also save, invest, buy large properties, flights and expensive holidays, none of which carry 20% VAT.
2. By contrast, income tax and national insurance is a progressive tax, higher earners pay at a higher rate.

 

[DumLum]

I’m sitting on the regressive tax opinion fence, but it’s because:
1. Consumption (which carries VAT) by low earners is at greater proportion of their income, that for the wealthy. The wealthy also save, invest, buy large properties, flights and expensive holidays, none of which carry 20% VAT.
2. By contrast, income tax and national insurance is a progressive tax, higher earners pay at a higher rate.

Wait. What? There is no VAT on flights or holidays?! There certainly should be! We should be adding Vat to more stuff then!

 

[El Presidente]

That's not how it works.
A small business with a turnover of 85k a year has to charge customers VAT and pass this on to the govenment. Yes they can claim the VAT back they paid on the stock they bought otherwise they would be paying the VAT twice. So many small businesses benefit from having a turnover less than 85k. Ballpark figure by 10% as rhey are not charging customers VAT.

Can sonebody explain why it's a regressive tax?
If you have almost zero disposable income you don't tend to buy many luxuries. Where as somebody spending £1000 a month on luxuries is paying £167 Vat.

It’s regressive because poorer families spend a greater proportion of their income on fuel, heating, confectionery, alcohol and other VAT related goods.

Wealthier people tend to save more or put into pensions which are not caught by sales taxes.

 

[El Presidente]

Wait. What? There is no VAT on flights or holidays?! There certainly should be! We should be adding Vat to more stuff then!

There is VAT on hotel accommodation.

 

[Weststander]

Wait. What? There is no VAT on flights or holidays?! There certainly should be! We should be adding Vat to more stuff then!

Package holidays don’t carry VAT. Instead tour operators themselves meet the small cost of VAT on the gross margin, under the Tour Operators Margin Scheme.
Flights, trains tickets and coach/bus travel don’t attract VAT.

 

[DumLum]

It’s regressive because poorer families spend a greater proportion of their income on fuel, heating, confectionery, alcohol and other VAT related goods.

Wealthier people tend to save more or put into pensions which are not caught by sales taxes.

I can see why it would be a regressive tax on fuel. Very good example.
Can't see a benefit of reducing VAT on alcohol or confectionery but I understand the regressive argument here to.
Less convinced on other goods because isn't it about disposable income? I probably pay a less VAT now supporting a family than when I was on £5 an hour living with my parents in the 90s.
I do fear the current zero rated essentials will suddenly have a sales tax applied to them also.

 

[Gazwag]

Depending on the changes, there are potentially huge costs to businesses having to update software/accountancy systems to deal with any changes.

Coming five minutes after MTD has caused huge costs to businesses having to buy/update software/accountancy systems to deal with it.

 

[Weststander]

I can see why it would be a regressive tax on fuel. Very good example.
Can't see a benefit of reducing VAT on alcohol or confectionery but I understand the regressive argument here to.
Less convinced on other goods because isn't it about disposable income? I probably pay a less VAT now supporting a family than when I was on £5 an hour living with my parents in the 90s.
I do fear the current zero rated essentials will suddenly have a sales tax applied to them also.

There would uproar if VAT was added to currently zero rated supplies. Even pro-tax Corbyn wouldn’t, as it would hit the poor disproportionately.

 

[Weststander]

Coming five minutes after MTD has caused huge costs to businesses having to buy/update software/accountancy systems to deal with it.

Sage for example, just added a free module, allowing supporting electronic data to be filed with a VAT return. Other software suppliers did the same. In the end the scary/stressful change, no one likes change, wasn’t as bad as feared.

Plus all non-VAT registered businesses and all businesses with a turnover less than £85,001, could ignore MTD.

 

[Creaky]

It’s regressive because poorer families spend a greater proportion of their income on fuel, heating, confectionery, alcohol and other VAT related goods.

Wealthier people tend to save more or put into pensions which are not caught by sales taxes.

Is that really so or is that just the case for middle income families? I would have thought the poorer families spend a higher proportion of their income on VAT exempt items such as food, housing and children’s clothing.

I agree that wealthier families don’t spend as much of their income as poorer families so don’t proportionally pay as much in sales taxes but they do eventually end up having to pay these when they do decide to spend or other taxes, often at higher rate if they don’t.

Returning to the system of purchase tax that was in force prior to the introduction of VAT would reduce company administration overheads, reduce the need for VAT inspectors and help reduce the estimated £1.5 billion losses due to fraud.

 

[Neville's Breakfast]

Wait. What? There is no VAT on flights or holidays?! There certainly should be! We should be adding Vat to more stuff then!

Wouldn’t make any difference. It’s not the ‘stuff’,it’s the investment returns from savings. These are only earned by the rich and it is impossible to police a VAT like tax on such returns because capital would then move abroad. Whether you like it or not all sales taxes are regressive.