VAT and the cashless society
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.
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.
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.
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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.
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.
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.