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VAT and the cashless society

16th Aug 2019
Christmas fair in Stockholm, Sweden
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Neil Warren believes that the move towards cashless retail outlets will be good news for both business owners and HMRC.

I recently spent a few days in the fantastic city of Stockholm. I entered the country with 270 krona in my wallet and left it three days later with 260. How could this happen, you might ask – less than £10 spent in four days? The answer is because virtually all shops, cafes, restaurants and bars in the city are now cashless – you have no choice but to get out your cards.

This trend is becoming more common in the UK as well. The outlets at Edgbaston Cricket ground all went cashless for the recent first test of the Ashes cricket series and, naturally, this got me thinking about the VAT implications of this profound change.

Cash differences

Is it possible to have a “cash difference” at the end of a trading day if there is no cash in the equation?

I have often been asked by accountants if a business should record the till total for output tax purposes if this is higher than the physical cash or vice versa. The answer is, of course, that it depends on the circumstances. For example, recording a £10 sale as £100 means that £90 needs to be taken off the till total. But if an employee steals cash from the till after a sale has been made, then output tax is still payable on the amount stolen.

Reduced number of VAT errors

It seems logical that if an outlet is cashless, and a mechanised till and debit card machine are linked to each other, there should be no takings differences, as there is obviously no scope for employees or anyone else to steal cash or make errors handing back the wrong change.

So, my first VAT conclusion is that the cashless society will mean fewer errors on VAT returns submitted by business owners because the computer is doing more work. This is the premise that underpins Making Tax Digital: more digitalisation reduces the scope for human errors.

Another possible benefit is that cashless businesses will be recognised by HMRC as being a lower risk for compliance purposes than, say, a fish and chip shop that only keeps a manual till to record its takings and only accepts cash.

Penalties

As an inspector in Customs and Excise about thirty years ago, I visited a greasy spoon café where the owner admitted that he sliced 20% off his business cash takings to pay for his gambling addiction.

His till procedures came out of the Del Boy Trotter school of accounting. If he hadn’t admitted that his actions were deliberate, he would have probably been assessed for a “careless” penalty in today’s penalty regime, rather than a penalty for “deliberate and concealed” behaviour.

If a business is cashless, how would the owner (or even employee or manager) have found his gambling money? The answer is that he would probably have deflected some card payments to his private bank account, in the same way an employee did in the FTT tribunal case: Total Catering Equipment Ltd TC07184.

If such a calculated process comes to light, the taxpayer is straight into a “deliberate and concealed” penalty situation because the audit trail will be so purposeful.

Swedish quirks

It is apparently very common for Swedish business owners to pay their tax early. The reason? The country has negative interest rates so you are charged by the banks to keep your money with them. An early tax payment, therefore, means reduced bank charges.

Conclusions

My three conclusions about VAT and a cashless business are:

  • HMRC is happy: less cash must mean a lower compliance risk as far as HMRC is concerned;
  • Reduced VAT errors: because computers and machines are doing more work and humans less;
  • An increase in penalties for ‘deliberate and concealed’ behaviour but a reduction in penalties for ‘careless’ errors and ‘deliberate not concealed’ errors.

Replies (6)

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By memyself-eye
16th Aug 2019 14:28

There will be an increase in output VAT as people using cards don't tend to notice the cost of the purchase so much (until they get their bank statements by which time it is too late)
My son runs a festival catering business (Glasto and all that) and trades increasingly cash free - by late evening most of the punters are so blitzed that they just wave the card (or phone) at him & don't know or care what the cost is.....

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By Cactuscat
16th Aug 2019 15:03

10 krona is ~85p. While you're right that this is "less than £10", that's rather overstating it.

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Hallerud at Easter
By DJKL
19th Aug 2019 11:20

"It is apparently very common for Swedish business owners to pay their tax early. The reason? The country has negative interest rates so you are charged by the banks to keep your money with them. An early tax payment, therefore, means reduced bank charges."

Maybe for business accounts but certainly not for personal accounts, we have had an account with Swedbank (initially with another Swedbank took over) for 14 years (15 this November) and despite chucking all my spare cash into it before June 2016 (as a hedge) we only get charged our usual fixed bank charges (for internet banking).

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By johnjenkins
19th Aug 2019 11:25

It's probably ok for big business but not for the smaller concern. How many signs do you see now saying "cash only" machine busted. Now there could be a number of reasons for this but I'm pretty sure the main one is cost.

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Hallerud at Easter
By DJKL
19th Aug 2019 11:37

Try driving across Germany with no cash when your card is not recognised at the service station toilets run by Sanifair.

We often take the ferry to the Netherlands (Rotterdam or Imjuden) and then zoom across Netherlands, Germany, Denmark and Sweden going to/from our house in Sweden. We always carry Euros, Danish Crowns and Swedish Crowns , even if just coins, just in case.

It is true some places in Sweden do not take cash, even our local tool store is cashless, but outside Stockholm/Gothenburg etc cash is still used regularly, especially in more rural areas.

In July I used cash in Sweden to buy an old globe from a secondhand shop ( try using cards at the local secondhand markets/pop up shops), the local pastries shop, local tobacco shop, little store in Tiveden where l buy my fishing permit (and some interesting jams), some ice creams, meals out, coffees, ICA and of course the person who cuts my grass/keeps my garden tidy.

The demise of cash in Sweden is slightly premature although the trend is in that direction.

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By EnglishRose
20th Aug 2019 17:28

Good points. However it will not always be possible. Eg some areas are very behind others. We just came back from a holiday destination where a lot of cash was needed for example - taxis all cash, many lunches cash, local bus cash etc etc. Also bad infrastructure has an impact too never mind the costs to traders of using debit cards compared with cash which can still be cheaper for some.

No one pays me for services in cash but plenty of the things I have to buy for the business I have to pay in cash for.

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