Imagine John and Marie check into a posh hotel for a luxury weekend break to celebrate their wedding anniversary. John runs his own business which is registered for VAT, so he shows proof of his VAT number to the hotel receptionist.
“Don’t charge me VAT,” he says, “this is a business trip.”
“No problem,” replies the receptionist, “that means your bill will be £1,000 and not £1,200. I’ll put your VAT number on the system so it takes off the 20% tax. Enjoy your stay.”
The idea of a sales tax instead of a value added tax is very attractive in many ways because all the tax paid to HMRC will then be what we used to call ‘sticking tax’ ie it is paid by consumers and not claimed back by the buyer of goods or services. But how would it work to avoid massive fraud and manipulation, as this example shows?
What about practical challenges? Would the hotel have to charge John VAT on part of the cost if his business was partly exempt?
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