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Increased tax, higher unemployment & economic difficulties

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odysseus2000
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Re: Increased tax, higher unemployment & economic difficulties

#386143

Postby odysseus2000 » February 12th, 2021, 6:00 pm

tjh290633 wrote:
odysseus2000 wrote:
The clue is in the name "Value Added". It is not a sales tax. Nor is it a revenue tax.

TJH


Yes, I know its called value added, but I pay it when someone sells me something and at that point it is a direct tax on the sale price which without VAT would be 20% less.

Regards,

Although the price which you pay has 20% added to the net price, the seller has already paid VAT to his suppliers, at 20% on their net prices, and he deducts that tax paid from the amount which the consumer pays in VAT, to arrive at the amount he remits to the Government. That is why it is called "Value Added Tax", because the seller pays the tax on the value which he has added, not on the items which he bought to resell which have already incurred VAT (the Input Tax).

TJH


As I understand VAT it is only the end user who pays, VAT registered business can claim it back and indeed can be paid by the Revenue the difference between what they paid and got back as per:

https://entrepreneurhandbook.co.uk/understanding-vat/

However, VAT registered businesses (barring flat rate registered businesses making sub £2,000 non-capital purchases) can claim back the VAT that they pay on business expenses, provided they are VAT registered. They therefore only pay HMRC the difference between the amount they have collected and the amount they have paid. If they have more VAT expenditure than they receive from customers, HMRC will pay them the difference.


Regards,

odysseus2000
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Re: Increased tax, higher unemployment & economic difficulties

#386147

Postby odysseus2000 » February 12th, 2021, 6:11 pm

dealtn
Ok, interesting.

So presumably your solution for a Chancellor with this perfect tax, looking to raise additional revenue, he should raise the rate of VAT to >20% in that case. Are you advocating that approach, or do you have an alternative suggestion?

Adopting your view that it is "end users" that pay all the tax, presumably you also think it is economically sensible therefore to abolish business taxes too. I actually think that's a credible an interesting suggestion, but politically I don't think it will fly. The direction of travel on this has reversed in recent years and the rates of Corporation Tax in the UK are now rising, and potentially rising again. They remain amongst the lowest across the world though which I applaud.


In terms of simplicity and guarantee of return, increasing VAT is one of the best ways that the exchequer can raise revenue. Such an increase may increase some losses through people paying in cash in an agreement with the retailer as a way to save the consumer 20% and give the retailer money that won't go through the books. This was a common practice, but currently I can rarely get any discount paying in cash, so I don't bother as cards are much easier and are less risky than paying cash.

The rate of vat has varied between 8 and 20%, so there is plenty of precedents for it to go higher and it would not surprise me if it did.

Given the state of many business i am not sure an increase in business taxes is a starter, so I am inclined to think that the Chancellor will keep things simple and raise VAT along with all manner of small tweaks here and there just to show how much he understands the taxation system.

Regards,


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