Vat Thrashing

One useful change I would make is to eliminate what I call VAT thrashing, that is all the needless payments to and from the Revenue and Customs.

The problem manifests itself most when a customer pays you late. Currently you have to pay the VAT to the Revenue even if your customer has not paid you. Of course you also end up having to pay your suppliers and their VAT before you have been paid. This can seriously affect cash flow and is often the reason businesses take on overdrafts and loans.

The only businesses that need to charge VAT are those that sell directly to the public, every other business need not get involved. Selling to the public is essentially a cash operation, albeit perhaps using a debit or credit card.

It would work like this, if your customer is VAT registered you would invoice them with no VAT and likewise your suppliers would do the same. If you were in doubt about your customers VAT status you would charge VAT on the invoice. This would be simple to operate, in computer terms, requiring a flag on the customers details data base.

VAT was invented before the majority of businesses had computers, now of course most business have automated accounts. The modification to the accounts package would be simple. Updating your customers data base with the new flag would be at your own pace.

Yes I know small businesses can elect to not pay VAT until they have been paid, but they still have to pay VAT to their suppliers and it is a nightmare to operate, I have tried.

25/07/2011

Vat Thrashing at a European level

At the European level governments avoid VAT thrashing. If a UK company supplies goods to a business customer in say Germany, they do not have to include VAT on the invoice, the transaction is essentially VAT free.

This avoids each country having to account for VAT inputs and outputs between themselves and thus no money has to be transferred.

20/10/2012