Save content
Have you found this content useful? Use the button above to save it to your profile.
Abolish VAT: Toy plastic forklift holding VAT
istock_bankrx

Abolish VAT: Brexit dream or reality?

by

Should VAT become a sales tax now that the UK has left the EU? Neil Warren considers this suggestion, alongside the downsides.

11th Mar 2021
Save content
Have you found this content useful? Use the button above to save it to your profile.

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.” 

Manipulation

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?

Register for free to continue reading

It’s 100% free and provides unlimited access to the latest accounting news, advice and insight every day. As well as access to this exclusive article, you can:


Content lock down, tick icon

View all AccountingWEB content


Content lock down, tick icon

Comment on articles


Content lock down, tick icon

Watch our digital shows and more

Access content now

Already have an account?
Tags:

Replies (57)

Please login or register to join the discussion.

Replying to flightdeck:
avatar
By Michael C Feltham
12th Mar 2021 17:17

Many thanks for your kind words; much appreciated.

Curl your hair and raise your blood pressure, here!

https://www.cityam.com/uk-taxpayers-second-highest-contributor-vat-eu-bu...

It seems to me, the days of Government profligacy have now become turbocharged! No longer wasting millions; it is now Billions!

A. Track and Trace: £37 Billion!!! For a totally failed system which never ever worked. Nice for Capita and the rest, though...

B. https://www.nytimes.com/interactive/2020/12/17/world/europe/britain-covi...

Another £22 BILLION!!

Keep on going...

Thanks (1)
Replying to Michael C Feltham:
avatar
By raybackler
12th Mar 2021 15:53

I agree that this is a fantastic summary. I was working for Bang and Olufsen at the time and our sales were subject to 33% Purchase Tax. With the looming change to VAT, our sales slowed as the public began to realise with the advent of 10% VAT that there was a big cost saving about to happen. Unfortunately the Danish Kroner was also moving adversely squeezing our margins. We increased our prices to coincide with the VAT introduction so there was no change in retail prices. This lead to a storm of protest and most of the accounts department were drafted into the sales team to cover the large volume of calls!

Thanks (1)
Replying to raybackler:
avatar
By Michael C Feltham
12th Mar 2021 17:25

Thank you, Ray.

In the early 70s, I was at management school, full time and one of my majors was the EEC.

Britain was then in its "Run In Period".

I was very much against joining the EEC, beforehand and after my studies even more against the idiocy which the EU became. After passing my management exams, I returned to practice, but focused on international consultancy.

Thanks (0)
Replying to Michael C Feltham:
avatar
By jeremybarker
15th Mar 2021 00:38

The idea that Purchase Tax only applied to "Luxury Goods" should be approached with great caution. That may have been the case at the outset but had been massively eroded as time went by. Essentially everything that was free of Purchase Tax was zero-rated when VAT came in. Almost everything that was subject to standard rate VAT had previously attracted Purchase Tax at one of several rates - hence it was an essentially correct statement to say that (in comparison to Purchase Tax) VAT was “One simple tax; one low rate.”

The McVitie's battle was about whether a Jaffa Cake was a chocolate biscuit which had been subject to Purchase Tax and attracted VAT or a cake which hadn't been subject to Purchase Tax and was zero-rated for VAT. During the case McVities development kitchens made some giant Jaffa Cakes which were very obviously a cake and essentially that was what settled the case. The dispute wasn't due to VAT per se and could have just as easily happened in the Purchase Tax era.

Thanks (0)
avatar
By adam.arca
13th Mar 2021 08:53

I think, realistically, there is no political will to abolish VAT. The best we can hope for is that, over time, our freedom from EU supervision will allow us to change the tax to suit us better and iron out some of the ridiculousness. That said, the introduction of DRC is a bad sign as it is going the wrong way in terms of simplicity so, again realistically, we’re all really whistling in the wind.

In terms of blue sky thinking and if we were to abolish VAT, though, I would prefer to look at the whole shooting match. Our current approach to taxation appears to be “let’s tax every taxable opportunity a little bit but not enough to make them squeal too loudly” along the line of Richelieu’s (was it him?) maxim.

Wouldn’t it be fairer to say either we’re going to tax income heavily (so, stuff like IT, CT, CGT) but spending lightly or, alternatively, the opposite and major on taxes like VAT, duties and IHT (if estate distribution is seen as a form of spending)? I would value that honesty but it would need a royal commission to do the spadework and I’m not holding my breath, just like we’re still waiting for the royal commission so badly needed on status generally and gig workers particularly.

Thanks (0)
avatar
By KABcraigmore
13th Mar 2021 08:59

................except John didnt notice that the VAT rate till 31 March should be 5% not 20%?

Thanks (0)
avatar
By AndrewV12
15th Mar 2021 09:21

Interesting article, pure fantasy of course, it brings in the government to much money and its the tax that the governments are not scared to put up, unlike others.

Thanks (0)

Pages