Rant VAT Payments - A Bloody Stupid System

That would be the same whether or not I'm the final link: you can't reclaim VAT on sales, only on purchases. (I mean, technically "expenses," but you know what I mean.)

And why would my supplier claim the VAT "back?" My supplier has received £2 more than they were supposed to, on the understanding they pay that £2 to HMRC at the end of the quarter. There's nothing to claim "back." That doesn't change whether I sell the widget, sit on the widget, or burn the widget on a bonfire: the supplier still can't claim anything back from HMRC. It had a £10 widget; it sold the £10 widget; it has £10 in its bank. Job done.

You're literally describing the process outlined in my first post, using different words. Why would I reclaim the VAT that my client paid? I have that VAT: if my client pays me £20 in VAT, and I claim £20 in VAT from HMRC, I've now got £40 and HMRC has -£20. I mean, I'd be happy doing it that way, but I doubt HMRC would be.

And, as in my first post, nothing would change if the VAT was zero-rated everywhere except the sale to a non-VAT-registered end-user. Forget about knowing whether the end-user is the actual end of the chain, because that doesn't matter: even if the end-user sells it on, there's no VAT collection or reclamation going on, because the end-user isn't VAT registered.

Let's break up the chain:

Supplier sells to me with £2 VAT on it. Supplier pays that £2 to HMRC, I claim that £2 back. Total left with HMRC: £0.

I sell to client with £20 VAT on it. I pay that £20 to HMRC. Client claims that £20 back. Total left with HMRC: £0.

Client sells to non-VAT-registered entity with £40 VAT on it. Client pays £40 to HMRC. Non-VAT-registered entity can't claim that £40 back, because they're a non-VAT-registered entity. Total left with HMRC: £40.

At no point does the supplier care whether I've sold it on; at no point do I care whether the client has sold it on. Our parts of the process don't change whether or not the client flogs it or sits on it.

And all parts of the process remain the same if the VAT was zero-rated for all registered-to-registered transactions.

£0 VAT to supplier from me, supplier pays £0 VAT to HMRC, I claim £0 back. Total left with HMRC: £0. (Same as above.)

£0 VAT to me from client, I pay £0 to HMRC, client claims £0 back. Total left with HMRC: £0. (Same as above.)

£40 VAT to client from non-VAT-registered entity, client pays £40 to HMRC, entity claims £0 back. Total left with HMRC: £40. (Same as above.)

 

That makes no sense, and isn't how it works (based on a day and a half of Having to Care, at this point.)

If I don't sell the widget on: supplier owes £2 to HMRC, can claim £0 back.
If I do sell the widget on: supplier still owes £2 to HMRC, can claim £0 back.

If I don't sell the widget on: I can claim my £2 back from HMRC.
If I do sell the widget on: I can claim my £2 back from HMRC.

In both cases, HMRC's share gets totalled to £0 - the same as it would get if the supplier-to-me transaction was zero-rated.

Can you demonstrate why you believe otherwise? 'cos I'm definitely not understanding where you're coming from, there.

 

Which is what HMRC already requires for cross-border but within-EEA transactions. There's a system and everything: VIES. You put a member state and a VAT number in there, it tells you if it's a valid VAT number and to whom it's been assigned.

 

I mean, I'm not sure when VIES launched but it's existed in its current place on the web since at least July 2007, so if you haven't integrated it by now I'm not sure there's much of a rush...

Yes, there's that, too. Remains to be seen how cross-border VAT's going to work in the EEA from January...

 

Which I refute here as I refuted there: it might be a value-added tax in name, but given that everyone who's VAT registered can just claim the payments back it's a sales tax in practice.

And I still haven't seen anyone explain how zero-rating all the stuff you can claim back would break anything.

Just show me a chain, like I posted, in which zero-rating would break something or diddle someone out of cash. That'd really help me see the position from which you're arguing.

EDIT:
Ah, hang on, the forum brought me straight to your post and I didn't see @edzieba's above. Let me have a read, see if it elucidates...

 

Hang on, I was with you right up until this point - but this I don't understand. I don't pay 20% of my profit - sorry, the value I added - as you're claiming here, I pay 20% of the total sales value.

Buy for £12 exc. VAT. Pay £2.40 VAT to whomever I bought it from. Sell for £20 exc. VAT. Receive £4 in VAT from whoever I sold it to, give that to HMRC. Where does £1.60 come from? (I understand it's 20% of £8, but why?)

If I receive £4 in VAT from whoever I sold the widget to, and I only give HMRC £1.60, I'm going down for VAT fraud.

EDIT:
Ah, I see! £4 minus £2.40 is £1.60. You're just parroting my earlier chain back to me using different numbers, aren't you? But sending HMRC £1.60 is the same as sending HMRC £4 and receiving £2.40 back, so I still don't see how it's better than zero-rating the whole thing and treating it as a sales tax. HMRC still ends up with £0, because the £4 I paid it (sorry, £1.60) didn't come from me - it came from my VAT-registered client, who claims it back.

I'm still waiting for anyone to show me a transaction chain between two or more VAT-registered companies where HMRC ends up with a non-zero figure in VAT once all is said and done.

EDIT EDIT:
I don't buy the "it'd be too much admin," either. It'd be less, and why couldn't you put the onus of proof on the buyer rather than the seller? If a pimply-faced youth wants to buy a bottle of White Lightning, they're going to be asked to prove they're over 18 with ID; if a client wants to buy a widget with zero-rated VAT, why can't they show me their VAT registration certificate? If the youth turns out to be underage with a convincing fake ID, they're nabbed for fraud; if my client turns out not to be VAT registered, samesies.

This makes extra sense when you realise that it's only the buyer that would benefit from the fraud: if they pay the VAT, I get an extra £4 but I have to turn around and give it to HMRC leaving me with £0 extra in my pocket; if they don't pay the VAT, they save that £4 but I still have £0 extra in my pocket. There's only one party benefiting there, and it ain't me!

 

But what stops them doing this now? My whole point is that all the registered businesses are paying £0 either way.

I think we may just have to face facts: I'm never going to understand the point of VAT over a simple sales tax. Good job I've got an accountant, eh?