Bring VAT down to 5%?

[stugster]

I read a small article today by the BBC that said for the construction (home improvements specifically) it would benefit people to bringnthe VAT rate down to 5% to stimulate that area of the economy.

Is anyone in agreement with this? I think that 20% VAT isnt as bad as I thought it would be. Its easier to calculate, and the difference between that and the 17.5% most are used to is really minimal.

Is anyone really struggling as a result of the VAT rate?

 

[Scottish Business Owner]

Have linked to the post below I think Stuart is referring to:

http://www.bbc.co.uk/news/uk-scotland-14010240

I have to say it's not really a proposal I would support. I think any sector could make the same arguments as to cutting the rate they work with. Property has been overvalued for ages so this correction was always coming. Like you say Stu working out 20% vat is actually alot easier. It's doesn't really have much impact in most businesses as it's neutral in terms of charging it on sales and taking it on purchases.

It's people's ability to raise the finance that's probably more of an issue. Just my 2p

 

[stugster]

That's the one! I couldn't work out how to pull it in from the BBC iPad app... still learning.

The article says that consumers would save 15p in every pound spent (They have some genius mathematicians at the Beeb) on home improvements. Would a 15% saving really be a deal breaker for a home improvement? I don't tend to look at offers in shops in that way (although the other half loves a "bargain"). I'm maybe just too sceptical.

Did anyone really notice the change from 15% to 20%?

 

[kmbookkeeping]

The only thing I really noticed it on was fuel, but I think that had more to do with the supposed price of oil at the time. Other than that, as said it was pretty invisible. At the same time I didn't really notice any great benefit from it going to 15% other than a bit of work to change folks systems to accommodate it, so it did offer some stimulation to my business.

Kris

 

[amestaper]

Construction rates are already confusing as they are. Zero VAT is paid on disabled housing alterations and new builds. Non residential to residential conversions, charities and green/energy saving appliances are sometimes 5% but most other work is charged at 20%. You may also presume that if you get a house extension built and add a few solar panels and a wind turbine incidentally in the same contract, that one would be charged at 20% and the other at 5%? You would be wrong as this is not the case, you would have to pay the higher rate for both.

For more information and further confusion see here - http://www.hmrc.gov.uk/vat/sectors/builders/construction.htm

Despite what you may think, being VAT registered can lose you work from financially squeezed domestic clients needing odd jobs done. This is an example I heard yesterday;

A retired couple would like their bungalow decorated and Tradesman A quotes £1000. For the exact same specification, Tradesman B quotes £1000 + VAT and for arguments sake lets say Tradesman B is by no means offering a better service than Tradesman A. I dont see a reason why the retired couple will hire Tradesman B and pay an extra £200?

And thats the only difference why one of them is working this week and the painter I spoke to yesterday is at home watching Jeremy Kyle. Bringing in a 5% rate could even up that balance a bit.

 

[Virtuo]

Either increase VAT to 50% and get rid of income tax or reduce VAT to 0% and let the government rake in their taxes from Corp tax. My preference is the former

 

[Stuart McAulay]

Or you could make every business VAT registered so everyone is on a level playing field. Reduce the threshold from £73,000 to £10,000. I believe the UK has one of the highest thresholds in Europe. Tradesmen (Tradespeople) stay below the VAT threshold by getting (non VAT registered) customers to buy the larger cost items directly. Reduce the threshold to £10,000 and anyone involved in a business will find it hard to avoid registering.

 

[Mike Lewis]

I think any sector could make the same arguments as to cutting the rate they work with.

I agree, . If cutting the VAT rate for a particular sector would stimulate that specific area of the economy, then that would be an argument for cutting it across the board. But I'm not convinced that it would.

Mike

 

[kmbookkeeping]

Either increase VAT to 50% and get rid of income tax or reduce VAT to 0% and let the government rake in their taxes from Corp tax. My preference is the former

This is interesting, but surely all it does is further penalise the poorer in society?

 

[Scottish Business Owner]

I get the whole issue that Stuart makes about lowering the threshold to try and level the playing field for tradesmen but in all honesty that's only one sector.

Mark - Maybe I'm being silly but I don't see the rationale for what your proposing at all. Am I being thick? If you reduce VAT to 0% then how does that affect corporation tax? Surely a business needs to make more money to pay more Corp tax? So how does not paying VAT make them more money?

 

[Adventurelife]

I like things simple. This country already has a huge range of totally stupid tax laws and requirements that are a drain on business. Messing with one sector just increases this and then starts campaigns from others. I know in Europe Germany , France and Ireland have all reduced their VAT on tourism products to below 10% !

I do think all businesses should be VAT reg as it is hard to compete with sole traders who have a 20% advantage on price. I do find VAT a pain although it is good cashflow to the business it is a lot of work to account for and complicated when you are in the TOMS system like one of our businesses. The whole tax system in the UK is a complicated mess and should not be it needs simplified but with all the vested interests it never will be it will just keep becoming a deeper and deeper jungle.