Gordon Brown mulls VAT slash

[Business]

There are few taxes as hated by small businesses as VAT. Sure, as a limited company we pay corporation tax - but once over the VAT threshold the biggest tax outlay can commonly feel like VAT. So despite being small, we end up being taxed twice, with the result that our yearly tax bill can end [...]

More: Gordon Brown mulls VAT slash

[howardg]

I don't really understand your argument at all. VAT may be a problem as far as cash flow is concerned, but unless you are a retail business where VAT can get lost in the final selling price, or can't claim back VAT on your purchases, the VAT impact on your business is tax neutral. Surely you add VAT to your charges, collect it from your customer and then pay it over to HMRC.
It is not the case that your tax rate is as high as you suggest.

[Brian Turner]

Thanks for the reply, howardg.

Adding VAT to services means having to have higher pricing than necessary.

Charging VAT isn't so much of a problem when working with other VAT registered companies, but Gordon Brown doesn't realise there's a big layer of sole traders who aren't VAT registered. Charging VAT to such people just means having to charge a pointless tax on them.

So in a best case scenario, being registered for VAT just turns a copany into a tax collector for a tax on services.

In a worst scenario, it means charging a tax on clients that either yourself or the client may feel they cannot afford.

Corporation tax I can accept as a tax on profits - but VAT is just a tax for being a business, which means raising prices to account for it, as well as the issue of not all sectors are VAT eligible.

Maybe I just hate VAT.

[howardg]

I understand your point, but ultimately your customer is bearing the cost rather than you. The original posting suggested that the tax rate for a company was in the region of 35% as a result of corporation tax and VAT and I think this is just misleading. Taking the point one step further, if you were a sole trader paying tax at 40% would you be arguing that your tax rate is 57.5%?

[Brian Turner]

howardg, you're completely right - I think I've been falling into the trap of considering VAT charged by my business as income, rather than tax collected.

I think overall I have real concerns about VAT, but in this instance, they were quite off the mark. I've edited the original piece now, which adds a point of wanting to see general cuts in business taxes to help small companies reinvest now.

[howardg]

Brian
Well irrespective of the rights and wrongs, today looks like being a day when VAT is slashed.
Personally, I think this could be very messy as whilst the man/woman in the street should benefit from reduced prices, it could mean alot of admin for many others. In fact the more I think about it this could be a nightmare. To be truly effective to stimulate consumer spending before Xmas, this probably needs to take effect from Dec 1st. Now think about all the computer systems, tills, stationery etc that needs to be changed. Also, there are loads of retailers on margin schemes and I can see these needing to be reworked.
Then of course, you have the problem that for many, the change could take place right in the middle of a VAT quarter causing plenty of problems. Additionally VAt on fuel scale charges would need reworking.

The more I look at this, it is a disaster waiting to happen.

[Brian Turner]

Yes, have to agree - now that it's happening, it means all billing is going to have to be reorganised, and that's going to add an extra element of admin that's not all that welcome - especially as I can't see this going to benefit SME's directly.

At a time when some of us held our breath expecting a few modest tax cuts to help reinvigorate business, we've had nothing of the sort - a freeze on increases in corp tax, and extra help for those SME's making losses.

The more I think about it, maybe a cut in NI and a slight lowering of corporation tax could have done wonders to help strengthen UK business.

Perhaps I'm not the best person to comment on that, but at present, it's hard to see what normal small businesses have gained positively from this.