VAT looking to drop to 15%

[FireFleur]

In 1991 VAT went from 15% to 17.5% on most goods.

Now in 2008 it looks like part of a plan to help the economy recover VAT is dropping to 15% again.

VAT or Sales Tax was one of the taxes added due to the wars, but when the war ended it never seemed to get removed

Whilst any drop in taxation is generally welcomed by the free market, does it go far enough, in 1973 VAT was 12.5%. Perhaps for a real stimulus to the economy we should be looking at VAT of say 10%.

And with a drop in VAT would most businesses pass that on to the consumer, a drop of 2.5% may actually cost more in relabeling the prices, but a drop of 7.5% across the board that would probably be passed on by business immediately.

 

[Rhyl Lightworks]

I have long thought that a cut in VAT would be a retrograde step, in fact it should, if anything, go up, and if cuts are to be made, income tax and NI should be targeted.

I say this because the relative taxations of labour and goods are very wrong. Labour is expensive financially, but environmentally cheap, while the reverse is true of goods. In these days of trying to make the economy greener, it is one step that could be made relatively easily.

It may be painful for some, but we should be trying to preserve what we've got, rather than continully replacing it.

Barrie

 

[Simon-M]

VAT at 15% or 50% makes no difference to a business that is VAT registered (selling B to B). The VAT is just collected for the VAT Man. He then gets it. If the thieving gits in the treasury give me back the 2% corporation tax they robbed from me to give to the fat cats at the top so they could get a little bit fatter then I am all ears.

 

[Rufford]

In 1991 VAT went from 15% to 17.5% on most goods.

Now in 2008 it looks like part of a plan to help the economy recover VAT is dropping to 15% again.

VAT or Sales Tax was one of the taxes added due to the wars, but when the war ended it never seemed to get removed

Whilst any drop in taxation is generally welcomed by the free market, does it go far enough, in 1973 VAT was 12.5%. Perhaps for a real stimulus to the economy we should be looking at VAT of say 10%.

And with a drop in VAT would most businesses pass that on to the consumer, a drop of 2.5% may actually cost more in relabeling the prices, but a drop of 7.5% across the board that would probably be passed on by business immediately.

Where's this information from please?

 

Where's this information from please?

http://news.sky.com/skynews/Home/Bu...n_The_Cards_To_Kickstart_Economy_In_Recession

 

[Rufford]

Got it ..

http://news.bbc.co.uk/1/hi/uk_politics/7744273.stm

 

[Draugen]

This could be an absolute nightmare for me. Luckily, my POS system makes it very easy to alter the VAT rate it records on purchases and our menu pricing will not need to be changed. However, due to a recent ruling by HMRC, we are having to change all our menus to reflect the VAT attracted by having certain items served hot or to eat in. Naturally, we need the customers understanding to make this work (they're actually getting a better deal, but it won't be immediately apparant). A VAT cut right at this point in time will not make it easy for us to keep customers on side when this happens!

As said in the original post, a drop to 10% may have been passed on to the customers, but a 2.5% drop will not be.

 

[directmarketingadvice]

This is another thing I don't understand.

From what I've read, price deflation is the thing that's most likely to turn this situation into a depression.

If that's the case, is a cut in VAT a risk?

Items with VAT on them will drop 2.5% in price. But, what about items that don't have VAT?

Will they, to maintain their price relative to VAT-ed items, also drop by 2.5%?

And, if they do, is that the start of deflation?

(maybe because it'll start a series of price cuts and people will start to "wait for the next price cut" before they buy)

I have no idea as I can't get my head around the concept of deflation.

Finally, the tax cuts are presented as an Xmas boost ("Tax 'holiday' aimed at encouraging shoppers to spend their way through the recession" - Guardian).

With the average UK adult having £5k of credit card debt, is that a good idea?

What's the likely outcome of people buying more this Christmas?

A short term boost followed by an even bigger problem than if there hadn't been this VAT cut?

I think I just don't understand this. Everyone seems to think it's a great idea, but I can't see it at all.

What am I missing?

Steve

 

[business123]

I can't see retailers passing this on, for instance products at my nice price point of £9.99, would come down to £9.76 - big deal! The fact that, due to the fall of the pound versus the Yen/Dollar/Euro, companies like Epson, Sony etc are increasing prices by between 10% - 15% next month in December after a couple of similar increases already in the last six months. For example, an Epson Multipack was £24.99 then £28.99 and is currently £29.99 - after the next rises, we'll be looking at £32.99/£33.99 just to protect our margin.

 

[Techsyn]

It will probably cost me money.

As I give a service and don't actually buy much, I'm on the flat rate system. That means that I can't reclaim any VAT on anything I buy, unless it's a capital expense over £2k, and that's once in a blue moon. I charge my customers 17.5% but only send the VAT man a lesser amount. I gain a bit and it compensates for not being able to reclaim the Vat on purchases. My issue would be that if the sales VAT rate goes down, I bet the rate I have to forward to the VAT man won't so the difference will reduce.

Les

 

[Mister B]

Like others, it really doesn't make sense at all to me. It looks like another short term ill thought out solution. Listening to the radio this morning, it looks like it will be going ahead though.

Mister B

 

[Textlocal]

What am I missing? The news says that the government think this can be inplemented to boost pre Chsrtistmas spending - but surely it is a logistical nightmare?

Won't shops have to re-label every item in store and reprogramme tills?

What about the 100k websites that would need to be changed over the next 2 weeks? Many "storefront" web traders may not have a clue how to change the VAT settings?

Al.

 

[business123]

I bet Poundland are looking forward to renaming their shops '97 1/2 penceland'!

 

[Dawg]

As a point of interest VAT can't be reduced to less than 15% without this being suggested by the EU Commission and then been approved of unanimously by all 27 member states. 15% is the lowest allowed by EU law under Directive2006/112/EC.
Which is why, of course, we should be a member of the EU, so we can change things to help our economy.

(That last statement was made under the Heavy Irony Directive 2008/Subsection Humour/EU)

 

[LINGsCARS]

A cut in VAT rate would cause much anger from consumers.

Because a 2.5% cut would be hard to spot (and not always passed on), there would immediately be a backlash caused by one or two high profile cases of "greedy retailers".

In fact, any cut in VAT would have to be made up elsewhere in taxes (eventually).

A better answer (IMHO) would be a raise to 20% which would be absorbed in the main by retailers who already achieve "price points", and a reduction in personal taxation at the lower end.

No extra benefit should be given to non-earners except pensioners.

This would ensure a 33% greater revenue flow to the exchequer (20% instead of 15%) on VAT which is a massive and almost immediate revenue boost.

That would allow a generous windfall to lower taxpayers, which again, it is assumed would be returned to the economy fast.

I realise a rise in VAT would be unpopular but the increase in spending and relaxation of the consumer's wallet would be a great relief.

 

[LINGsCARS]

What am I missing? The news says that the government think this can be inplemented to boost pre Chsrtistmas spending - but surely it is a logistical nightmare?

Won't shops have to re-label every item in store and reprogramme tills?

What about the 100k websites that would need to be changed over the next 2 weeks? Many "storefront" web traders may not have a clue how to change the VAT settings?

Al.

In reality, I would not really change my pricing to personal customers due to an overnight change. That's why I suggest that one or two examples on non-change would be whipped up by the media into a storm of consumer anger. Just before Christmas.

 

[directmarketingadvice]

I can't see retailers passing this on, for instance products at my nice price point of £9.99, would come down to £9.76 - big deal!

Even on a bigger ticket item, does it really make that much of a difference?

Amazon have an XBox Elite - a reasonable example of a possible xmas present - as having RRP £229.99.

2.5% off that is £5.75.

Amazon already sell it at £10 off.

My point is this: small savings like this can already be made by shopping around online. So, how is it going to help high street retailers?

I dunno. Maybe I'm missing something really obvious and this'll kickstart the economy.

(surely my questions are so basic, the treasury has already thought of them and decided they're not relevant)

But, as I said before, the point of this is escaping me...

Steve

 

[Textlocal]

In reality, I would not really change my pricing to personal customers due to an overnight change. That's why I suggest that one or two examples on non-change would be whipped up by the media into a storm of consumer anger. Just before Christmas.

Can you imagine Woolworths (on news this morning - possible collapse).

They, like all high street stores, have just finalised their Xmas displays. If VAT drops to 15% then head office will have to reprint all sales literature, brochures, display cards - for every store within the next 2 weeks - I just can't imagine this happening - at least - not completely. In which case they will end up in a total mess of half-correct pricing and total confusion.

Also, the staff will have to be paid to make the changes on the shop floor.... surely this will actually cost businesses more than it's actually worth?

 

[LINGsCARS]

Steve and txtlocal, this is why, if the decision was mine, I would INCREASE VAT to fund major cuts elsewhere.

Because
a) it will not be passed on before Christmas anyway

b) it would make only 2.5% difference to prices (actually less), and is nit-sh1t.

c) because the combined increase across the board to the treasury would be massive and quite immediate and allow big cuts elsewhere.

 

[thenameisgili]

Like any place in the world today!!!

 

[benseb]

The goverment don't seem to have taken into account the huge cost of making this change for retailers?

Businesses using 'off the shelf' software solultions may be ok, however how many businesses are using custom-written systems, for example on websites, etc. Not all of these will allow an easy change of VAT rate. Even those than can 'easily' be changed may require the intervention of an expensive software developer!

All this change benefits is software companies who will charge to make the changes!!

Anyone any ideas how the new rate would be introduced (if it goes ahead)? I presume there would be a couple of weeks lead time and then a month or so whereby you can trade at either rate as long as you account for it correctly?

 

[groovyjon]

Amazon have an XBox Elite - a reasonable example of a possible xmas present - as having RRP £229.99. 2.5% off that is £5.75.

It's less of a difference than that. The 2.5% is just off the VAT component, not the full price. So it would actually be just £4.89 less.

And what worries me is that this is being put forward as a "temporary" reduction in VAT. So we could go through all the hassle and expense of changing all the prices in our shop and our website, and then have to do it all in reverse in a few months time.

 

[Barnie]

crap idea tbh, better way would have been to 2.5% lower tax on our wages

 

[estwig]

I have already had clients on the phone to me this afternoon, wanting to know if I am gonna reduce the remaining work to be done on their extensions by 2.5%.

Stupid question and I told 'em to 's*d off it's Sunday!!!!

No I didn't unfortunately, I told them I didn't know yet.

 

[movietub]

I believe cuts should be made to income tax. In particular the 40% threshold! Its never made sense to me that higher earners should pay at a higher rate. Surely taxation is based on % because % is always relative. Its sensible and fair to use % calculations and daft to then tweak the figures at either end of the scale.

The reason Income tax should be cut is simple. It gives more spending power to the consumer, in turn this stimulates business. Its better for businesse to sell more to make more money than sell less and make more profit per unit. Better because it pushes businesses to seek more efficient operations.

In a nutshell I think its better to make more money available for businesses to earn, rather than just give them more money and hope they use it wisely. By endevouring to earn more any business will improve.

 

[Happyeater]

As previously mentioned only companies like Sage will make a fortune out of this by charging for an upgrade. So much for saving people money.

 

[directmarketingadvice]

I believe cuts should be made to income tax. In particular the 40% threshold!

Well, it looks like that'll be going up to 45% after the election.

The reason Income tax should be cut is simple. It gives more spending power to the consumer, in turn this stimulates business.

Assuming the consumer decides to spend the money.

What we have is people with a lot of debt that are worried about losing their jobs.

History shows that this means a reduction in spending and buggering about by governments to manipulate things doesn't tend to change that.

But, maybe I'm a cynic and they'll respond enthusiastically to this 2.1%* reduction in prices.

(if it's passed along)

Steve

*groovyjon is right, it's not 2.5%, it's 2.5/117.5 = 2.1%.

 

[movietub]

Well, it looks like that'll be going up to 45% after the election.



What we have is people with a lot of debt that are worried about losing their jobs.

History shows that this means a reduction in spending and buggering about by governments to manipulate things doesn't tend to change that.

But, maybe I'm a cynic and they'll respond enthusiastically to this 2.1%* reduction in prices.

(if it's passed along)

Steve

*groovyjon is right, it's not 2.5%, it's 2.5/117.5 = 2.1%.

Yea... 45%. for a government that wants to encourage enterprise why do they insist on lowering the rewards?

Regards other comments. Your quite right many would not spend the money directly or immediatly. If I'm honest my view wasnt strictly relevant to this thread. To be honest I think that any tax cut will take nearly as long to have a tangible effect as the downturn will take to correct itself naturally. But then I'm sure the masses will simply read 'tax cut!?' and then have a big party!

What I should have said was long term, with or without the recession, I think income tax should be minimal and product tax more specific. Both because it processes more money through businesses and allows people to live a tax efficient lif if they are prepared to live a basic one - those that love to burn petrol for fun (shamefully me) will pay a lot of tax.

But thats a big can of worms, maybe another thread needed!

 

[Pab]

As previously mentioned only companies like Sage will make a fortune out of this by charging for an upgrade. So much for saving people money.

Fortunately it's very easy to adjust the T1 VAT rate in Sage... whew.

 

I don't see the benefit at all tbh.

This looks like a 'fix' to the general public, when it is really just another high profile sham.

 

[movietub]

As with all these things - Im sure it will effect me in a small way one way or the other. But I'm already busy and always improving what I do. I don't think any of these token gestures will register that highly and changes I make frequently to the business will continue to have a greater effect. It certainly does not offer a big advantage to me - well how can it? Its a blanket change for everyone.

Obviously a reduction in VAT would require a response and alter how we calculate prices etc - but we look at that equation when any % from anywhere changes, VAT is just one part of it.

Certainly a token gesture, sure the voters will lap it up. Personally I'm less than moved, concerned or, frankly, interested!

 

[Rhyl Lightworks]

What a daft idea. If the Vat rate is reduced by 2.5% the effect on prices will be very small, the cost of implementing it will reduce this effect even further, and if the reduction is temporary, all this work will have to be done again in the future.
The only benefit seems to be psychological to the public, most of whom do not understand this anyway (most already think thaty actual prices will come down by 2.5%). This psychological benefit could have been achieved in other, less costly, ways.
Barrie

 

[Dawg]

As usual The Mash goes to the core of the issue..

 

[HC-Martin]

In reality the 2.5 just won't be passed on - as it's too much hassle to re-price everything.

What it might mean though is that companies will be making an extra 2.5% profit on items, which might in turn give them that bit of extra cash to prevent them having to make staffing cuts etc....

 

[Tom McClelland]

This is the kind of complete BS micro-tinkering with the tax system that the economic ignorami employed by the BBC and ITV business news sections love. Clearly none of these guys have ever run a business themselves. So we'll see the continued nauseating spectacle of them fawning over Brown and Darling.

Ling is right. Far more sensible to increase VAT and reduce personal and business taxes.

And increasing the rate for higher earners to 45% is insane (but likely to be politically popular amongst the uninformed). It will reduce revenue not increase it. With employer's NI and the 1% employee's NI the true marginal tax rate for higher earners will be back up to an effective 52.1%. You only need a very tiny number of the higher earners to decide to go elsewhere (and they're the people who find that easiest) or to decide to work less hard and earn less, to discover that you've killed the tax goose that laid the welfare golden egg. Reducing marginal tax rates increased the overall tax take in the '80s in both the USA and the UK because the incentives to game the system were removed.

 

[Tom McClelland]

As usual The Mash goes to the core of the issue..

Brilliant article. Sums it up perfectly.

 

thats very good dawg made me chuckle mate,as far a 2.5% cut goes it wont make much of `a dent in reality it needed a 7.5% cut to bring it down to 10p if its really going to make any folks rush to the shops