Discussion in 'General' started by Gareth Halfacree, 3 Aug 2020.
I'm sure he or she would agree with that.
If it was carefully implemented, so not by the current "government", it could save businesses money in admin costs and do the same for the exchequer.
Is anyone else finding this thread about VAT both interesting and enjoyable?
by making us businesses do all the work for them they've already saved money on staff & created jobs by making us need accountants.
For a government that's a "win", even if it is extremely convoluted
Hands up all the degenerate perverts (moi) who actively enjoy reading manuals and filling out forms!
Only when claiming back VAT on business expenses, which can only ever reduce your tax payment. Registered businesses are collecting VAT on everything they are not using themselves (i.e. all items and services they purchase and resell, or generate from whole cloth), as that's the point of VAT. If you zero-rate all VAT for businesses, all the kerfuffle of fraudulent expense claiming is skipped for an easy way to avoid paying this kludged-together sales tax altogether and directly cut raw purchase price:
Joe Bloggs and Jane Bloggs register themselves as sole traders and receive VAT numbers. Jane Bloggs wants a shiny new Macbook. Jane Bloggs buys a shiny new Macbook for 20% off retail price. When asked, she says she intends to sell it to Joe Bloggs, who is also a business, so clearly nobody needs to pay tax. Jane Bloggs now has a shiny new Macbook at 20% off with no tax paid by anyone and no business expense deductions filed.
Wronger than a wrong thing: HMRC will happily cut you a cheque if the VAT you're reclaiming exceeds the VAT you've collected on their behalf. They just take the higher of 5% or £50 for the privilege.
My mistake - they give you the higher of 5% or £50, if your claim takes longer than 30 days to approve.
(Added bonus: remember how you "don't charge VAT?" Well, that page contains the line "if you've charged your customers less VAT"...)
That makes no sense whatsoever. Jane Bloggs can currently buy the MacBook, claim the VAT back (20% discount here we go), *and* claim the purchase as a business expense (another 29%-ish off the top, if she's paying income tax and National Insurance at the usual rates) without involving Joe Bloggs in the least. That wouldn't change at all under my proposed make-it-the-sales-tax-it-actually-is-in-practice.
Your confusion seems to stem from thinking that there has to be an onward sale; there doesn't. The VAT-reg-to-VAT-reg that means Jane can claim back the 20% VAT she paid on the MacBook happened between her and Currys PC World. That's what she's claiming back, and that's what would be zero-rated if it were a sales tax. HMRC doesn't care whether she's selling the MacBook to Joe Bloggs or using it to heat up eggs.
I fear you may need to take a look at the VAT manual for a refresher, based on the above...
Or in other words: if the Value you Added is negative, the Value Added Tax is negative too. That HMRC couches it in terms of the in-and-out pay-and-refund accounting dance (assuming Joe Bloggs is into double-entry bookeeping) unnecessarily obfuscates how VAT works.
The current 'dodge' requires Jane Bloggs to file a VAT return and itemise the Macbook as a business expense (you only get to claim that 20% back once, not twice!), which could easily be audited and demonstrated as for personal use when someone goes looking for the line tiem "one Macbook". But if purchased for resale stock under a sales-tax system there is zero paper trail to tip HMRC off in the first place (as you don't send them an itemised list of your stock awaiting resale). It's a risk-free tax avoidance method.
Again, the fact that you can claim back VAT for business expenses is tangential to how VAT fundamentally works. You could drop the whole business-expense-refund deal altogether and VAT carries on working exactly the same. By zero-rating all VAT amounts except the final one, you're not using VAT at all, you've just switched to a Sales Tax system and called it the wrong name.
Or, in other words, claiming VAT back on business expenses can do more than just reduce your tax payment - yes?
You wouldn't be able to claim it back twice if it'd been zero-rated, either...
Who said it was for personal use? Jane Bloggs is a sole trader, buying it for business purposes - otherwise what was the point of the VAT registration certificate?
But you *do* send them a list of expenses, which includes stock. And if a business starts buying in a load of stock but never sells any, guess what HMRC's going to do? Hint: rhymes with plaudit, but it's not as much fun. Hardly risk-free!
You're saying that like it should come as a surprise, when it's what I've been saying all along. See?
I'm saying VAT is, in effect, a sales tax disguised as a value-added tax because every single VAT-registered entity in the chain ends up claiming the VAT back and the only person whose money rests with HMRC is the poor non-VAT-registered buyer. Nothing you've posted has disproven that: I've yet to see you post a purchase chain (or even a single purchase, VAT-reg-to-VAT-reg like Currys PC World to Jane Bloggs) where that's not true.
Even assuming you were right and having zero-rated transactions with no paperwork would increase fraud, who said there would be no paperwork? Just do exactly what you do now, tracking each transaction, but at 0% instead of 20%. HMRC still gets a list of everything that wasn't VAT-exempt (which is distinct from zero-rated) but you don't end up with the stupid I'll-pay-you-£20-and-HMRC-will-pay-me-£20-if-you-pay-the-£20-I-paid-you-to-HMRC dance.
Zero possibility for fraud outside what the current system offers; same traceability; accountants still in a job, because those quarterly VAT returns still need filling in; but nobody needs to pay anybody including HMRC, except whoever sold the widget to a non-VAT-registered entity.
You're telling me that wouldn't be easier? ('cos I'm literally describing how cross-border EEA VAT transactions work right now...)
I just let my accountant deal with it all, I just upload all invoices, receipts, statements etc to a secure shared document library.
In fact, he often complains that I am not claiming enough expenses to further reduce my tax bills, but I don't get "creative" with claims.
Every entity in the chain pays VAT. They pay it on the Value they Added. They do not claim this back. The I-pay-you-you-pay-me dance is not how any actual money changes hands other than in the magical bistromathics of double-entry bookkeeping. An entity paying VAT collects 20% of the price they charge whoever bought the good/service, but not all of this gets sent to HMRC. See below
Oh, there's paperwork alright! More than with VAT! Again, go look at the US' Sales Tax system, the only remaining large economy who has not witched to VAT. SO MUCH paperwork.
The dance is a fictitious artifact of accounting.
Miner mines some Iron. They sell the Iron for £1.20 (£1 + 20p VAT). At the end of the year, they send 20p to HMRC (20% of £1 generated value)
Refiner buys Iron, makes steel. They sell the steel for £2.40 (£2 plus 40p VAT). At the end of the year, they send 20p to HMRC (20% of £1 value added, £2 - £1)
Machinist buys steel, makes widget. They sell the widget for £3.60 (£3 plus 60p VAT). At the end of the year, they send 20p to HMRC (20% of £1 value added, £3 - £2)
Final sale price is £3.60, final VAT is 60p, final amount paid to HMRC is 60p. But nobody ever claimed anything back from HMRC, or sent more than 20% of their value added to HMRC. Notice that nobody in the chain cares at all who they are selling to. Nobody needs to verify the VAT status of anybody.
Switching to a Sales Tax system adds a bunch of extra VAT-number-is-really-valid checking (and paperwork) for no benefit to every transaction. Because the fallback position to not getting a valid VAT number when making a sale is to charge 20% VAT and handle sending cash to HMRC, which is what you already do anyway under a VAT scheme anyway.
You're arguing semantics, and deliberately muddying the water by confusing "paying VAT" to a supplier and "paying VAT" to HMRC.
My client pays VAT - as in, there's a line-item for "VAT: £20" in the invoice I send - to me, for the goods/services I render unto them.
I pay VAT - that very £20 they gave to me, in as much as you can say that in a world that doesn't work with a £20 note in a brown envelope any more - to HMRC on, as you would say, "the value I add." But that £20 is literally the £20 my client paid me.
My client claims that £20 back from HMRC. If it were an envelope with a £20 note in it, HMRC would now send it back to my client - right where it started.
I cannot claim back the VAT I paid HMRC, obviously, because that was never my £20 - but my client sure as hell claims it back.
Read my post again: my approach would have exactly the same paperwork as the current system. All you'd do is find and replace "20%" in all the invoices with "0%". How would that increase paperwork?
...and that's a good reason not to get rid of it? I mean, for anyone other than accountants?
You've made a mistake, there, and it's exactly the same one you made earlier: the refiner would reclaim the 20p it paid the miner in VAT; the machinist would reclaim the 40p it paid the refiner in VAT. Now, they might do so as input VAT on a transaction - but not necessarily.
Here, perhaps this'll explain where you're going wrong: what if the machinist can't find a buyer? In your example, he's sending 20p to HMRC - the 60p he got from the sale minus the 40p he paid to the refiner. But if he can't find a buyer, he claims the 40p he's already paid to the refiner back from HMRC. That doesn't arrive as a reduction in the tax he owes, because in this simplified example that widget is the only thing he's done all quarter; it arrives 30 days later as a cheque from HMRC for 40p.
If only we had an is-the-VAT-number-really-valid system. Oh, wait, we do!
And, again, I'm talking about a world where you use exactly the same paperwork and file the same filings as now, but at 0% instead of 20%. So, tell me do, how exactly I cheat the system when I'm filing a VAT return which says I owe £0 on humpty-tump transactions at 0% (with each transaction itemised exactly the same way they are now) instead of a tax return which says I owe £0 on humpty-tump transactions at 20% because humpty-tump input VATs equalled exactly humpty-tump output VATs?
No, I;m trying to explain the core misunderstanding that VAT involves you paying HMRC money and then HMRC paying it back, because that's not how it works.
ONLY if they consider the work you did for them (or product you sold them) to be a business expense. A system that is tangential at best to how VAT works. If for example you sold a thing directly to a consumer, then they would not be claiming any VAT relief. If the concept of a 'business expense' did not exist (as in some nations) then it would also have no effect on how VAT works.
Because you'd be doing all the paperwork for VAT as it stands, and on top of that all the extra paperwork for verifying the VAT status of every person you're selling to. You've added to your paperwork load for no benefit.
NO! That is not how VAT works!
The refiner cannot claim any of the VAT they paid for raw material as a 'business expense' because it is not a business expense! If they were buying a pencil sharpener for sue in their office, that would be a business expense. Raw material for producing their product is not.
Again, 'claiming back VAT' for business expenses is a completely orthogonal thing to how VAT works as a tax system.
"If you changed the way VAT works, it would have no effect on how VAT works."
You've ignored the part of my post where I point out the "verification" is literally "type a number into a website." Done.
Dude, you're wrong. Like, completely wrong. Confident, but wrong.
Let's ask Xero, which should know: "Business expenses include things like stock, work tools, computers, phones, and stationery. You can’t claim VAT on client entertainment. [...] You can claim back VAT on supplies even if the end product or service that you sell is 0% VAT rated."
Don't believe Xero? Let's ask HMRC what you can't claim back:
Care to show me where it says "stock" or "materials" there?
Here's HMRC again, saying that when you register you can backdate claims for "goods you still have on hand, or that were used to make other goods you still have"- y'know, goods that you use to make other goods. Raw materials, say.
Here's Go Self Employed, explicitly stating that you can claim VAT back on "goods and materials; stock."
How about bookkeepers VGW&Co's advice on filling in your first VAT return, which clearly states that you can claim "trading stock at date of VAT registration [and/or] materials on hand at date of VAT registration."
Here's a businessperson pointing out VAT reclamation happens "when you bought the stock."
How about Sage, which is very clear in saying "you can claim tax back on: Items that you resell, e.g. stock; Raw materials that you use to make goods for sale; Direct costs from producing goods."
So far you've said a lot of words, but posted zero links backing up your (erroneous, as far as I can see) claims. Care to remedy that, or are we done here?
Given @edzieba been in this 'ere thread three times, that I've seen, since I posted my rebuttal and said nowt, I'm guessing the answer is "we're done here."
So, yes. As I was saying, VAT, which I understand perfectly well a whole week on from having to start to care about it, is a stupid system.
Nah, he's just preparing a really long reply .
I've had stuff to do that isn't preparing a brevet financial record! Not everyone has weekends off!
...I wrote a chapter of an upcoming book this weekend. And still had time to see if you fancied admitting to your error.
I've enjoyed two voices I normally agree with be on opposite sides of something I've literally no idea about, let's keep it civil shall we?
Separate names with a comma.