VAT implications of Wrexit slowly dawning

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https://www.theguardian.com/politics/2018/jan/06/vat-upfront-after-brexit-uk-imports

Also GSK are claiming they are diverting cancer R&D funds to pay for increased costs associated with Wrexit
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  • exocetexocet Frets: 431
    mellowsun said:
    https://www.theguardian.com/politics/2018/jan/06/vat-upfront-after-brexit-uk-imports

    Also GSK are claiming they are diverting cancer R&D funds to pay for increased costs associated with Wrexit
    But that sounds like something that is entirely within the control of UK government rather than being an unavoidable consequence of Brexit? 
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  • RavenousRavenous Frets: 1376
    Wasn't VAT introduced in the first place as a part of our EEC membership?  Maybe it's time to get rid of it... just saying... :)
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  • Phil_aka_PipPhil_aka_Pip Frets: 7403
    @Ravenous I think you're right. I was on a start-your-own-business course and I asked the tutor how come we changed from "Purchase Tax" which AFAIK was a retail tax, to VAT which penalises everyone all down the production chain. His answer: "We joined the common market". And his facial expression showed exactly what he thought of that move!
    "Working" software has only unobserved bugs.
    Parroty Error: Pieces of Nine! Pieces of Nine!
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  • jellyrolljellyroll Frets: 1890
    Yes, VAT was invented by the French as a way to de-risk sales tax (traders charging the tax and running off with it).

    In many cases, VAT on imports can be delayed through the government's deferral scheme. There would still be some losers though - albeit cashflow rather than absolute cost.
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  • OctafishOctafish Frets: 692
    Ravenous said:
    Wasn't VAT introduced in the first place as a part of our EEC membership?  Maybe it's time to get rid of it... just saying... :)
    Ha, ha no one is going to get rid of VAT soon, besides we had a sales tax before VAT anyway. VAT's a great way of hiding taxation as, although people moan about it from time to time, the electorate mainly focus on income tax levels.
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  • OctafishOctafish Frets: 692
    edited January 9
    Apparently we had purchase tax prior to 1973 at 25%, so as is often the case we can't claim it's all down to the dastardly EU. Purchase tax was levied on luxury goods, what was defined as luxury I'm not sure although isn't that simlar to VAT?
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  • exocetexocet Frets: 431
    Whilst not completely global, VAT is fairly widespread throughout the developed world so I don't see this as being purely an EU issue although the more I read into it I'm starting to see the implications for Brexit. To be honest I'm still a little confused by it - perhaps naively I thought that VAT wasn't levied on exports from one country to another?
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  • FretwiredFretwired Frets: 13045
    Octafish said:
    Apparently we had purchase tax prior to 1973 at 25%, so as is often the case we can't claim it's all down to the dastardly EU. Purchase tax was levied on luxury goods, what was defined as luxury I'm not sure although isn't that simlar to VAT?
    No. Purchase Tax when first introduced was levied on expensive items, especially imported items. The idea being those that could afford a Bentley or a bottle of Channel No5 could afford to pay more tax. There were low rates on other items but basic items were exempt.

    VAT was different. It was a flat rate consumption tax on basically everything. The UK had some opt outs and for a while we kept various rates, but ultimately we had to follow the rules and have a standard rate. However, we kept our zero rate which is applied to things like food, medicine and children's clothing. However the EU wanted us to scrap the zero rate (it's not allowed under EU rules). The lowest rate is 5% on a small list of items and must be at least 15% on everything else. Pierre Moscovici, the EU's Economics Commissioner, said that Britain's "zero rate" for VAT on a number of items is "not the best idea" and suggested it will be looked at as part of a review by the European Commission. Then Brexit happened.

    My pump-action drivel gun is smoking hot today!
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  • OctafishOctafish Frets: 692
    Fretwired said:
    Octafish said:
    Apparently we had purchase tax prior to 1973 at 25%, so as is often the case we can't claim it's all down to the dastardly EU. Purchase tax was levied on luxury goods, what was defined as luxury I'm not sure although isn't that simlar to VAT?
    No. Purchase Tax when first introduced was levied on expensive items, especially imported items. The idea being those that could afford a Bentley or a bottle of Channel No5 could afford to pay more tax. There were low rates on other items but basic items were exempt.

    VAT was different. It was a flat rate consumption tax on basically everything. The UK had some opt outs and for a while we kept various rates, but ultimately we had to follow the rules and have a standard rate. However, we kept our zero rate which is applied to things like food, medicine and children's clothing. However the EU wanted us to scrap the zero rate (it's not allowed under EU rules). The lowest rate is 5% on a small list of items and must be at least 15% on everything else. Pierre Moscovici, the EU's Economics Commissioner, said that Britain's "zero rate" for VAT on a number of items is "not the best idea" and suggested it will be looked at as part of a review by the European Commission. Then Brexit happened.

    It seems to be hard to find any hard facts on purchase tax, but it was levied against things such as furniture, toys, records etc. Was it leveied against fuels? To be honest it seemed most things other food and clothes are considered luxury.
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  • exocet said:
    Whilst not completely global, VAT is fairly widespread throughout the developed world so I don't see this as being purely an EU issue although the more I read into it I'm starting to see the implications for Brexit. To be honest I'm still a little confused by it - perhaps naively I thought that VAT wasn't levied on exports from one country to another?
    VAT isn't charged on exports, it is charged on imports.
    Within the EU purchases can be transferred from state to state without any additional VAT as long as the VAT from the EU country of origin (or EU country of first import) has been applied/paid. This is for private sales/transactions.
    VAT registered businesses trading between EU states is a bit different. As a business I buy something from a business in Germany. They do not charge me any German VAT. I declare the purchase on my VAT return and VAT due is applied to my VAT bill, which I settle every quarter. I sell some/all of that stock during the accounting period and recoup the VAT from the sales. I pay my VAT bill with this money.
    Once we leave the EU this will change when the the VAT is paid. The German seller will sell to me ex-VAT as I am no longer based in the EU and I will pay the VAT upon import to the UK. Exactly the same as currently when I import from outside the EU. The VAT I've paid out is accounted for on my VAT bill and offset against VAT I have collected on sales.
    Importers of EU products will lose up to 90 days interest free deferment on paying the VAT.

    It's a cashflow issue. A business running a negative cashflow will incur extra outlay on interest charges to finance the upfront VAT payment. However I get 14 days from invoice to settle my VAT bills from UPS (in effect becomes 28 days due to the billing cycle), and I'm a minnow. Large importers will probably be given longer.

    Finally, yes, the Govt could certainly decide to keep the accounting the same as it is now, but I suspect it wouldn't be practical and would be met with complaints from companies who mainly import from outside the EU wanting the same deferment.
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  • exocetexocet Frets: 431
    exocet said:
    Whilst not completely global, VAT is fairly widespread throughout the developed world so I don't see this as being purely an EU issue although the more I read into it I'm starting to see the implications for Brexit. To be honest I'm still a little confused by it - perhaps naively I thought that VAT wasn't levied on exports from one country to another?
    VAT isn't charged on exports, it is charged on imports.
    Within the EU purchases can be transferred from state to state without any additional VAT as long as the VAT from the EU country of origin (or EU country of first import) has been applied/paid. This is for private sales/transactions.
    VAT registered businesses trading between EU states is a bit different. As a business I buy something from a business in Germany. They do not charge me any German VAT. I declare the purchase on my VAT return and VAT due is applied to my VAT bill, which I settle every quarter. I sell some/all of that stock during the accounting period and recoup the VAT from the sales. I pay my VAT bill with this money.
    Once we leave the EU this will change when the the VAT is paid. The German seller will sell to me ex-VAT as I am no longer based in the EU and I will pay the VAT upon import to the UK. Exactly the same as currently when I import from outside the EU. The VAT I've paid out is accounted for on my VAT bill and offset against VAT I have collected on sales.
    Importers of EU products will lose up to 90 days interest free deferment on paying the VAT.

    It's a cashflow issue. A business running a negative cashflow will incur extra outlay on interest charges to finance the upfront VAT payment. However I get 14 days from invoice to settle my VAT bills from UPS (in effect becomes 28 days due to the billing cycle), and I'm a minnow. Large importers will probably be given longer.

    Finally, yes, the Govt could certainly decide to keep the accounting the same as it is now, but I suspect it wouldn't be practical and would be met with complaints from companies who mainly import from outside the EU wanting the same deferment.
    Thanks for that - really good explanation :)

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  • FretwiredFretwired Frets: 13045
    Octafish said:


    It seems to be hard to find any hard facts on purchase tax, but it was levied against things such as furniture, toys, records etc. Was it leveied against fuels? To be honest it seemed most things other food and clothes are considered luxury.
    Read this .... being a British tax it wasn't straight forward.

    http://www.peterice.com/purchasetax.htm

    My pump-action drivel gun is smoking hot today!
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