Proposed Vat reduction

[Deleted member 26715]

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 & we all know that is what is going to happen on the vast majority of goods, or they will come down to £1.15 for a couple of weeks & then go back up to £1.20 or more using inflation as the reason.

 

[BoldonLad]

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%.

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?

1. Yes, that is exactly my understanding, and experience of doing my VAT return. Note, that is is possible to get a VAT refund, if the Input Tax exceeds the Output tax.

2. Yes, if the vendor does not reflect the reduction in VAT rate in their selling price, then, they will make more profit, but, to be clear, VAT is not levied on profit, it is quite possible for the vendor to sell at a loss, and still pay VAT to HMRC.

 

[Alex321]

What kind of household can afford £600 a week on vatable items? Most households I know don't have £600 income

As usual, the "average" they use is not the best one.

They will have used the mean, when the mode would have been much better. Even the median would be better than the mean for this sort of ting, as the value will be badly skewed by the very rich, who spend several thousand a week.

 

[Alex321]

But with inflation at 10%+ a cut of 5% to VAT is going to be of no use to anybody

Interesting conclusion. Not sure how you arrive at it.

Sure, it won't put people in as good a position as they would have been without the 10% inflation, but it will still be better than nothing.

 

[Alex321]

According to the figures I saw, disposable income is calculated after Tax, NI and Council Tax, but not Mortgage / Rent. Even so, it still seems high. That would give Mr & Mrs average a gross income in excess of £55k, which seems high as an 'average' (they used 'Median' as their average, not 'Mean' by the way)

Well median is better than mean, but still not as good as mode in terms of telling us what disposable income "most" people have.

 

[markemark]

Interesting conclusion. Not sure how you arrive at it.

Sure, it won't put people in as good a position as they would have been without the 10% inflation, but it will still be better than nothing.

It is worse than nothing as the reduction won’t help those that need it and only help those that don’t. The problem is that it will fuel inflation by putting disposal income into the pockets of the wealthy making things even harder for those that are struggling.

 

[Lozz360]

The only good thing about reducing VAT is that it benefits everyone as we all spend on VAT payable goods and services. One alternative is to reduce income tax or NI. The drawback with that is that people who pay no income tax or NI (often the poorer part of the population) would not benefit at all.

The problem with reducing VAT by 5% to 15% only reduces end cost by just 4.1% assuming the retailer doesn’t increase their price.

 

[jowwy]

The only good thing about reducing VAT is that it benefits everyone as we all spend on VAT payable goods and services. One alternative is to reduce income tax or NI. The drawback with that is that people who pay no income tax or NI (often the poorer part of the population) would not benefit at all.

The problem with reducing VAT by 5% to 15% only reduces end cost by just 4.1% assuming the retailer doesn’t increase their price.

Isnt NI being wound back, dont want this to get political and booted, but it is one of the proposals being offered by one of the parties involved

 

[Lozz360]

Isnt NI being wound back, dont want this to get political and booted, but it is one of the proposals being offered by one of the parties involved

I don’t know to be honest. It’s a tax on people who work. If you don’t or can’t work you don’t pay it so you don’t benefit if it is reduced.

 

[jowwy]

I don’t know to be honest. It’s a tax on people who work. If you don’t or can’t work you don’t pay it so you don’t benefit if it is reduced.

But you did list that as one of your options, so just stated thats the current proposal by one candidate

 

[Low Gear Guy]

The only good thing about reducing VAT is that it benefits everyone as we all spend on VAT payable goods and services. One alternative is to reduce income tax or NI. The drawback with that is that people who pay no income tax or NI (often the poorer part of the population) would not benefit at all.

The problem with reducing VAT by 5% to 15% only reduces end cost by just 4.1% assuming the retailer doesn’t increase their price.

It does not benefit everyone. The less welll off spend most of their money on goods and services that are zero rated e.g. mortgage payments, rent, food, water bills, bus fares

 

[Jenkins]

Isnt NI being wound back, dont want this to get political and booted, but it is one of the proposals being offered by one of the parties involved

Although the level of NI was increased a few months ago, the threshold at which it is paid was raised last month(ish). One of Liz Truss's proposals for if she becme PM was to cancel the rise completely - something of little use to the lower paid.

 

[jowwy]

Although the level of NI was increased a few months ago, the threshold at which it is paid was raised last month(ish). One of Liz Truss's proposals for if she becme PM was to cancel the rise completely - something of little use to the lower paid.

But its not just the lower paid thats struggling now, its middle income earners too, who it would benefit….and as they say, every little helps.

 

[Jenkins]

But its not just the lower paid thats struggling now, its middle income earners too, who it would benefit….and as they say, every little helps.

I don't disagree that even middle income earners are stuggling as well, but you can bet that this would be claimed to be helping the lower paid - which it won't.
There's quite a lot of people a reduction in NI wouldn't help - even some 'middle income' types such as myself. I took partial retirement in June and now work 3 days per week and have taken most of my work's pension so I have a total gross salary/pension of around £25,000 per annum or around £1800 per month take home. My NI payment in August = £5.77 so bugger all benifit from any reduction.

(Don't worry about being booted for being political - I'll take that hit for you )

 

[jowwy]

I don't disagree that even middle income earners are stuggling as well, but you can bet that this would be claimed to be helping the lower paid - which it won't.
There's quite a lot of people a reduction in NI wouldn't help - even some 'middle income' types such as myself. I took partial retirement in June and now work 3 days per week and have taken most of my work's pension so I have a total gross salary/pension of around £25,000 per annum or around £1800 per month take home. My NI payment in August = £5.77 so bugger all benifit from any reduction.

(Don't worry about being booted for being political - I'll take that hit for you )

But how much of that 1800 a month is pension, which wouldnt be subject to NI costs???