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Question about VAT


Biomech
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This seems like a good place to ask as I believe there are a number of councillors present.

 

This is something that has always baffled and upset me - why do we pay VAT? Well no, I know why we pay VAT, because the government want more or our well earnt money.

 

Really my question is, what do we get in return for the VAT that we pay? Where is the "Value"? What "value are we getting?

 

While I'm sure it all goes towards the big pot of public spenditure, that's not really the issue.

 

Let's say a small business that is not VAT registered sells.... little plastic Colins and Bobby47's for £10 each. And then company number 2 who are VAT registered sell the same figures, at either £10 or £12. Now what extra value are we getting by paying either the same or extra for the same product?

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Here is a good example because it really makes very little difference whether you are registered or not, its swings and roundabouts

 

We spend a lot on materials and turnover approx 350k so need to be VAT registered which instantly makes me 20% less competitive. I employ staff which costs me more so I make less per job and also I'm instantly 20% more expensive.

 

But you claim back the VAT on the materials you buy so in theory your ex-vat price should be lower than a non vat registered company selling the same as you as your buy price is lower? So you are only 20% more expensive if you allow yourself to be.

 

Example 1

 

You buy a widget for £100+vat total paid by you: £120

You add £50 labour - £170, but claim back the £20 from HMRC - so your sell price is £150+vat (total £180)

 

Example 2

Non vat registered competitor

 

Competitor buys a widget for £100+vat total paid by Competitor: £120

Competitor adds £50 labour - £170, but cannot claim back the £20 from HMRC - so Competitor sell price is £170 in order to make the same profit (£50).

 

So, you are currently at a disadvantage to your competitor - but, if you are selling to a VAT registered business, you only cost £150 to the business - your competitor will cost them £170, so you are £20 cheaper and have an advantage...

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The thing is, however, if you provide a service, you will never claim back the same level of VAT that you are forced to pay.

 

Let's say you charge £1,000 for .. I don't know, gardening say. You claim back VAT on your gloves and tools, per job let's say that equates to £20.

You have to pay £200 in VAT making you down £180 with nothing to show for it.

 

I was actually thinking more from the consumers point of view. When I pay VAT on something in a shop, what am I getting in return? Especially when I could go next door and not pay VAT.

 

Don't even get me started on corporation theft... I mean tax. Swiping 20% from small businesses and giving NOTHING in return. That, as far as I'm concerned, is theft.

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The thing is, however, if you provide a service, you will never claim back the same level of VAT that you are forced to pay.

 

Let's say you charge £1,000 for .. I don't know, gardening say. You claim back VAT on your gloves and tools, per job let's say that equates to £20.

You have to pay £200 in VAT making you down £180 with nothing to show for it.

 

I was actually thinking more from the consumers point of view. When I pay VAT on something in a shop, what am I getting in return? Especially when I could go next door and not pay VAT.

 

Don't even get me started on corporation theft... I mean tax. Swiping 20% from small businesses and giving NOTHING in return. That, as far as I'm concerned, is theft.

 

I think I know what you are trying to get at but normally in business you pay VAT on the difference between what you buy and what you sell. As for the consumer we have already all paid income tax in theory so why we have to pay again, again and again is also in my opinion daylight robbery.

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When I had a hotel between 1988 and 1999 most guests paid with a credit card. The credit card companies charged me a handling charge for each transaction about 3%. The interesting thing was that at the time VAT was charged at 15% and included in the guest's bill and because there was no section on the credit card slip to show the amount paid in VAT the credit card companies took 3% off the total bill including the VAT. That is where the added value is for the banks.

 

I wrote to the Office of Fair Trading for an explanation and was told that this arrangement had been agreed between the banks and government. Although credit card slips have almost disappeared the same system is still being used with chip and pin. Just imagine what 3% of the VAT element (20% today) is on card purchases used every day in the UK.

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Well you will love this then, I use a small van for work and when I bought it the price on the forecourt was £4800 +VAT, now when i sold it I am not VAT registered so therefore I cannot charge VAT.

 

But the next person, if they are VAT registered or if it sells at auction will charge VAT each and every time this van is sold which could be 4 - 5 times in its life, so how much are the Government making just from vans alone!

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I think I know what you are trying to get at but normally in business you pay VAT on the difference between what you buy and what you sell. As for the consumer we have already all paid income tax in theory so why we have to pay again, again and again is also in my opinion daylight robbery.

 

That's right Colin, but they can be hugely different. You could have a claim for £200 yet a bill to pay for £20,000

 

VAT along with corporation tax is the government stealing money for absolutely no reason but to line their own pockets. Unlike things like council tax or emissions tax, we get nothing in return for what we pay in business taxes. If we did, small businesses would be liable to VAT as well. All it does is stifle economic growth. I run a business. Because of my service and (suited) pricing model, if I turnover £78,500 I might make 60k. If I turn over £79,000, I would make £34k. That £500 of work would put my profits down by nearly half. It's ludicrous!

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