"Price +VAT" Question

[nickmann]

Possibly a daft and pointless question, but it is Friday after all...

In my location there is no VAT or other type of sales tax, so I am used to saying that something costs "£10".

I notice than when those of you in the UK mention a price, you often say it in the form of "£10 plus VAT". I then mentally work out how much it will cost.

Why? If you are going to have to pay £11.75 for it, what does it matter how the price is arrived at? Would you say the the price of fuel is "47p plus duty"?

I'm just curious.

 

[nickg]

You're right.
But...........
If you are a VAT registered business, you can recover the VAT you pay on business expenses. So, the real cost to you is the net price of £10.
But to an individual buying the same thing the cost is £11.75 because he/she cannot recover the VAT element.

e.g. car lease deals.

 

[Vips]

Also it should not matter to you either way, as any VAT quoted you can claim back, just like a UK VAT registered business, as residents of Guernsey / Jersey are tax exempt.

 

[BTB 500]

I notice than when those of you in the UK mention a price, you often say it in the form of "£10 plus VAT".

Normally because that's the way the price has been quoted in the first place (e.g. by a dealer parts dept.). As mentioned, some people can claim the VAT back and some can't.

I buy my computer ink cartridges etc. from Guernsey

It's the system in the US that drives me mad. In shops they add on the equivalent of VAT etc. at the till, so (a) you always pay more than the sticker price and (b) nobody can get change ready for a small item like a magazine etc. while queuing (or even 'standing in line' ). I always end up with pockets full of loose change for that reason

 

[jeremytaylor]

I notice than when those of you in the UK mention a price, you often say it in the form of "£10 plus VAT". I then mentally work out how much it will cost.

Why? If you are going to have to pay £11.75 for it, what does it matter how the price is arrived at? Would you say the the price of fuel is "47p plus duty"?

Because it makes the product/service sound cheaper than it really is (to a non-VAT registered person)?

 

[imadoofus]

It's the system in the US that drives me mad.

Yeah!

They call it "Sales Tax", and the buyer pays it!

PJ

Mind you, we call ours "Value Added Tax"

 

[Ashley]

I am VAT reg and the VAT free price is what we pay for goods or services. But don't forget we have to send on 17.5% of our sales from this amount we subtract any vat we have paid for goods and remit the balance. There is a big movement towards VAT reg companies not being levied any vat on good and services and forwarding the full 17.5% of the sales, this would free up cash flow and lead to a healthy British economy. At the moment this does not have main steam support but the FSB is set to bring this into the forefront.

 

[imadoofus]

There is a big movement towards VAT reg companies not being levied any vat on good and services and forwarding the full 17.5% of the sales, this would free up cash flow and lead to a healthy British economy. At the moment this does not have main steam support but the FSB is set to bring this into the forefront.

I'm sorry zooman; usually you're a paragon of good sense, but the above falls short of your usual standard.

If (in this theoretical future scenario) companies are not levied any vat on goods and services, how could they forward 17.5% of their sales? They haven't levied any vat on their goods and services, so they don't have the 17.5% to forward.

In 2003/4, HMC&E (as was) netted £162 billion in receipts. They wrote off £600 million in VAT, and £40 million in fines (from a total of nearly £300 million). There is no justification for them to increase their receipts any further, particularly given their recent merger with IR was ostensibly to reduce costs.

PJ

 

[Ashley]

Sorry I did not make myself clear.

A = Wholesaler
B = Store
C = Customer (non vat reg)
D = Customer (Vat reg)


A sells goods to B, VAT is zero rated.

B sells to C, VAT standard rate (17.5%).



B sells to D, VAT is zero rated.

A small comment on different VAT schemes I made sometime ago.

As you will know only the end user who is not VAT reg pays VAT on goods or services. This simple cuts out the movement of cash (cash flow). It also means that HMG does not get the VAT payment untill the end user sale is made.

 

[imadoofus]

I thought you were saying that there would be no input tax, but having re-read your post in the light of your post on hfuk, I presume you're referring to the net-zero-rating idea between registered businesses.

That won't make any difference to the Government's net VAT receipts, but it will have an effect (quite probably a detrimental one) on an individual company's cashflow. I'm sure I don't need to tell you that many SMEs (as well as large organisations) rely heavily upon the reclaims of input tax reducing their VAT liability to be able to pay Customs at all. Take away the input reclaim, and you'll get many more companies failiang to pay their VAT on time, incurring fines and interest, and ultimately, going to the wall.

PJ

 

[nickg]

I thought you were saying that there would be no input tax, but having re-read your post in the light of your post on hfuk, I presume you're referring to the net-zero-rating idea between registered businesses.

That won't make any difference to the Government's net VAT receipts, but it will have an effect (quite probably a detrimental one) on an individual company's cashflow. I'm sure I don't need to tell you that many SMEs (as well as large organisations) rely heavily upon the reclaims of input tax reducing their VAT liability to be able to pay Customs at all. Take away the input reclaim, and you'll get many more companies failiang to pay their VAT on time, incurring fines and interest, and ultimately, going to the wall.

PJ

I do not disagree with this. But, the idea that Zooman put forward would mean that only retailers (i.e. businesses selling to the general public) would charge VAT and therefore only they would account for output VAT to HMRC. In theory, such businesses have less cashflow pressure because their customers pay when the goods are supplied. i.e. you dont go into tesco, buy a trolley full of food and get 60 days credit.
In practice there are lots of cash businesses with cashflow issues, but that is another matter.

 

[imadoofus]

OK, makes sense now. Thanks. I'm afraid I had completely misunderstood zooman's post (and slandered his good name into the bargain - sorry zooman ). ?

Nevertheless, it appears to be a change for the sake of change, and I don't really see there would be any benefits (or drawbacks) to arise from it.

Seems like the tail wagging to dog to me...

PJ

 

[nickmann]

Blimey, it was just an idle question. Yes it does not matter to me really, was just wondering about the terminology. I understand the point about business expenses but it gets used in contexts where this would not be relevant. Strange isn't it?

Off-topic a bit - I do most of my shopping for goods in the UK, online, but only from sites that will sell to me ex-VAT. Sadly this is not everywhere - we can't be dealt with as zero-rated as we have no VAT numbers etc.

Prices in Guernsey/Jersey are usually higher than the UK equivalent (often even including the VAT), and postage is cheap...

Except ink cartdridges apparently? Is that from 7 Day Shop?

 

[fuzzer]

VAT is a pointless paper excercise that costs business money to admin.

There are still a number of excepmtions in the UK as far as VAT goes. Normally when you see the word CASH it would appear those transactions are VAT free

 

[Ashley]

I will keep this simple as I can.

Audio Visual Store.

£10,000 goods in stock. Paid to supplier £11,750.
£800 Electric Bill. Paid to supplier £940.
£200 Phone Bill. Paid to supplier £235.
£1,000 Rent. Paid to supplier £1,175.

Total spend 12k total payout £14,100 (£2,100).

Sales of £20,000 plus VAT (£3,500).

Now they have already paid £2,100 out of the cash flow towards the VAT and have to remit the balance of £1,400.

The way I purpose is that the store forwards on the full £3,500 from the sales and basically subtracts the amount from the sales and deposits it within a savings account (earning interest) awaiting forwarding. This would free up the £2,100 that at the moment is paid to the VAT man to be invested elsewhere in the company.

The suppliers have no VAT commitments, ether input or output unless they deal with both VAT and non VAT customers and even then need only do the same as the store regarding the VAT valued sales.

Also mom and pop companies (like mine) would have much simplified method of saving for the VAT as i would simply now that I need to put 17.5% in the savings account at the moment I have to calculate the amounts to make as much of our cash flowing as possible.

 

[imadoofus]

Nope. Sorry. It's gone again. Try wiggling the aerial....

The £2,100 isn't currently paid to the VAT man (not by the store), it's paid variously to the supplier, the electric co, the phone people and the rent man. It can't be freed up to invest elsewhere, because it's already been spent.

If the store didn't have to pay VAT on those things those because the suppliers weren't charging it, then the money would indeed be freed up, but economic pressure would very quickly demand that the £2,100 "saved" be invested in price reductions to customers, rather than elsewhere within the business. This would cause the net receipts to the Government to fall over time, as the store would be charging VAT on lower sales.

PJ

PS: Nickmann - stop interrupting!

 

[Ashley]

If the store didn't have to pay VAT on those things those because the suppliers weren't charging it, then the money would indeed be freed up, but economic pressure would very quickly demand that the £2,100 "saved" be invested in price reductions to customers, rather than elsewhere within the business. This would cause the net receipts to the Government to fall over time, as the store would be charging VAT on lower sales.

Some would I agree but in the end that same argument also says that the government is affecting the cost of living due to the set rules at present.

P.S If I found that my overall costs dropped by a percent I would not need to pass this on to the customer and as such I may have more cutomers at the end of the day.

 

[imadoofus]

Some would I agree but in the end that same argument also says that the government is affecting the cost of living due to the set rules at present.

Fair point.

I was just suggesting that it's unlikely the government would go for this FSB recommendation for precisely that reason.

PJ

 

[big x]

I will keep this simple as I can.

Audio Visual Store.

£10,000 goods in stock. Paid to supplier £11,750.
£800 Electric Bill. Paid to supplier £940.
£200 Phone Bill. Paid to supplier £235.
£1,000 Rent. Paid to supplier £1,175.

Total spend 12k total payout £14,100 (£2,100).

Sales of £20,000 plus VAT (£3,500).

Now they have already paid £2,100 out of the cash flow towards the VAT and have to remit the balance of £1,400.

The way I purpose is that the store forwards on the full £3,500 from the sales and basically subtracts the amount from the sales and deposits it within a savings account (earning interest) awaiting forwarding. This would free up the £2,100 that at the moment is paid to the VAT man to be invested elsewhere in the company.

The suppliers have no VAT commitments, ether input or output unless they deal with both VAT and non VAT customers and even then need only do the same as the store regarding the VAT valued sales.

Also mom and pop companies (like mine) would have much simplified method of saving for the VAT as i would simply now that I need to put 17.5% in the savings account at the moment I have to calculate the amounts to make as much of our cash flowing as possible.

Er..I hope you don't fill in your VAT return like this, the rate on power bills is 5% !
In practice your idea won't work as it creates extra paperwork and the potential for fraud,for example mixed supplies.I'm VAT registered
go into a newsagent and buy a paper and a pen.Currently I ask for a till receipt
which
has the VAT no. on and reclaim for the VAT on the pen.If the pen was zero rated to me the newsagent would need to keep 2 sets of books and need my VAT number to account for the zero rated supply.

adam

 

[Ashley]

I hope you don't do a return as it is only domestic fuel or power that is at the reduced-rate and as such can not be reclaimed.

Easy it is opt in, so the newspaper shop need not opt in to sell at (lets call it rate E) e, and if you where to need to buy the pan you could submit the receipt in the standard method.

The technology is already in use in the form of Procurement Cards (I did around 60k last year on procurement cards not big but growing year on year) and already vary easy sales to make.