Proposed Vat reduction

[Gwylan]

Nobody really clarified, satisfactorily, how much of my spend is subject to VAT.

I have a state pension. Most of my income is spent on food, energy and local taxes.

A reduction of VAT will not amount to much. If I bought a new, expensive car or bike that would make a difference.

But for the manu

 

[Regular.Cyclist]

Not all foods are zero rated for VAT. Some are standard rated.

These include alcoholic drinks, confectionery, crisps and savoury snacks, hot food, sports drinks, hot takeaways, ice cream, soft drinks and mineral water

 

[PaulSB]

Nobody really clarified, satisfactorily, how much of my spend is subject to VAT.

I have a state pension. Most of my income is spent on food, energy and local taxes.

A reduction of VAT will not amount to much. If I bought a new, expensive car or bike that would make a difference.

But for the manu

I can't give you precise figures but it's likely the bulk of your food purchases are zero rated, energy attracts 5% VAT and concil tax (local taxes I presume) do not carry VAT.

Reducing or even scrapping VAT will have little or no impact for the situation you describe or for millions of others.

There are two possible solutions to this crisis as I see it. The government, that is the country, picks up the tab and we all pay for it via increased taxation. The other possibility, suggested by the energy companies, is a fund set up to finance consumer bills repayable over 5 - 10 years. In my view the energy companies are those most likely to understand the situation and have a workable solution.

When we come out of this the time has come to renationalise all essential industries such as energy, water, transport and substantially increase taxation to pay for the services we demand. The great British public has to stop expecting everything to be cheap, understand taxes are required to pay for services and come to grips with the reality this country is finished if we don't all begin to pay our fair share.

The sooner we stop expecting "them" to solve the problems and take individual responsibility the better.

 

[markemark]

Reducing vat would either help the businesses that sells the good or help those that spend the most on vatable items which are mostly non essential. This won’t help those who are borderline but put cash in the pockets of those who need help less or not at all. The bigger problem is that it’ll probably increase inflation as it’ll put moderate to large amounts of disposable income into the pockets of people who aren’t struggling financially.

 

[Gwylan]

I can't give you precise figures but it's likely the bulk of your food purchases are zero rated, energy attracts 5% VAT and concil tax (local taxes I presume) do not carry VAT.

Reducing or even scrapping VAT will have little or no impact for the situation you describe or for millions of others.

There are two possible solutions to this crisis as I see it. The government, that is the country, picks up the tab and we all pay for it via increased taxation. The other possibility, suggested by the energy companies, is a fund set up to finance consumer bills repayable over 5 - 10 years. In my view the energy companies are those most likely to understand the situation and have a workable solution.

When we come out of this the time has come to renationalise all essential industries such as energy, water, transport and substantially increase taxation to pay for the services we demand. The great British public has to stop expecting everything to be cheap, understand taxes are required to pay for services and come to grips with the reality this country is finished if we don't all begin to pay our fair share.

The sooner we stop expecting "them" to solve the problems and take individual responsibility the better.

I sort of knew the answer.

A 20% reduction in VAT does not amount to much for the individual. In the case of a 5% rate it is 1% of the total price. The admin will cost more and the transition will be a pain the the arse. Also a licence for every dodgy transaction you can imagine.

The whole thing is a pretty pathetic and shabby con trick.

As you say it will only benefit those who spend lots on items subject to VAT.
That generally is not those who need the help most to buy food and fuel.

As usual "it's the rich what gets the pleasure and the poor what gets the pain"

 

[markemark]

I sort of knew the answer.

A 20% reduction in VAT does not amount to much for the individual. In the case of a 5% rate it is 1% of the total price. The admin will cost more and the transition will be a pain the the arse. Also a licence for every dodgy transaction you can imagine.

The whole thing is a pretty pathetic and shabby con trick.

As you say it will only benefit those who spend lots on items subject to VAT.
That generally is not those who need the help most to buy food and fuel.

As usual "it's the rich what gets the pleasure and the poor what gets the pain"

Vat dropping from 20% to 15% will be a 4.4% drop on the total price. Assuming it’s passed on to the buyer an item which cost £1.20 will cost £1.15. As far as I’m aware items at the 5% and 0% rate will be unaffected.

 

[rualexander]

Vat dropping from 20% to 15% will be a 4.4% drop on the total price. Assuming it’s passed on to the buyer an item which cost £1.20 will cost £1.15. As far as I’m aware items at the 5% and 0% rate will be unaffected.

And once you've added on 10% inflation (or more) it will cost at least £1.25

 

[Joffey]

It will never get passed on to the customer - businesses are struggling too so I'd guess they would keep the 5p in the pound!

 

[Regular.Cyclist]

It will never get passed on to the customer - businesses are struggling too so I'd guess they would keep the 5p in the pound!

I think at the lower end that will certainly be the case in most areas. It’ll be different at the higher end so those going in to buy their new Ferrari 296 GTB, or Royal Oak Perpetual Calendar with save a not insignificant amount.

 

[Deleted member 26715]

I think at the lower end that will certainly be the case in most areas. It’ll be different at the higher end so those going in to buy their new Ferrari 296 GTB, or Royal Oak Perpetual Calendar with save a not insignificant amount.

Not convinced, even for the Ferrari buyer the story will be that the price was due to go up anyway so it's just been hidden in the price & that they've taken the hit to be able to sell you the car at the same price, the only loser will be HMRC & the rest of the population by association.

 

[BoldonLad]

I think at the lower end that will certainly be the case in most areas. It’ll be different at the higher end so those going in to buy their new Ferrari 296 GTB, or Royal Oak Perpetual Calendar with save a not insignificant amount.

Such people don’t pay taxes do they? Taxes are for the rest of us.

 

[Lozz360]

Perhaps you have simplified, for the sake of explanation, In which case, please ignore this post.

Unless the calculation of VAT has changed since I ran my own little company, it is not quite as simple as that, you have omitted the vendors 'input tax' which is deducted from the 20p VAT, and the net amount goes to HMRC. Either way, the buyer of the pen pays the 20p VAT (unless they are a VAT registered trader, and the pen is a business expense or component).

If the vendor charges VAT then the input VAT will be claimed back (more likely deducted from the vendor’s VAT bill). Therefore, the input VAT can be ignored for the purpose of the calculation.

For example, vendor buys a pen at £0.50 plus (20%) VAT, total £0.60. Vendor then sells pen for £1.00 plus VAT, total £1.20. Vendor makes a profit of £0.50 and pays £0.10 (£0.20 - £0.10) to HMRC. So cost to end buyer is £1.20, profit to vendor, £0.50.

Example with VAT reduced to 15%. Vendor buys at £0.50 plus VAT total £0.575. Vendor then sells at £1.00 plus VAT, total £1.15. Vendor profit is still £0.50 but VAT bill is now £0.075. So vendor’s VAT bill is reduced by 25% but in this example is of no benefit to vendor at all. The end buyer sees a reduction of just roughly 4%.

 

[midlife]

In the second example at 15% Vat what are the maths if the pen still retails at £1.20. Does the vendor make more profit?

 

[Lozz360]

Yes. The vendor is increasing his profit.

 

[markemark]

In the second example at 15% Vat what are the maths if the pen still retails at £1.20. Does the vendor make more profit?

Yes. Their profit is increased by the drop in vat at the selling price if it is not passed on to the final buyer. Their buying price vat is irrelevant as they simply claim back the vat they paid whether it is 15 or 20%. Their cost is the buying price net of vat.