I came across a gem in my husband’s Sunday paper, written by a businessman who had had a VAT inspection.
Hunter Davies, writing in The Sunday Times, said that he found VAT "a total nonsense" because he has to spend a lot of time "collecting tax for the government", only to have to "give it all back".
He lamented the hours that businesspeople, bookkeepers and accountants have to spend administering VAT.
I think two points come out of this;
1) In effect, the business community are acting as unpaid tax collectors for VAT.
2) When your business is paid for an invoice including VAT, it may be advisable to put the VAT element aside in a separate bank account, so that you don’t spend it by accident. It isn’t the business’s money – it’s the government’s.
My husband suggested that VAT should be abolished in favour of extra percentage points on income tax. I’m not convinced.
Certainly the mechanics of VAT frequently have me tearing my hair out – witness the recent case about pure fruit smoothies. The unprocessed fruit would be zero-rated, but once it’s whizzed in a blender, even if no other ingredients are added, and even though it still counts as one of the much-vaunted "5 a day", it becomes standard-rated. Whoever thought that up has got too much time on their hands.
But in principle (and it doesn’t always work in practice), the VAT system ensures that people who spend more on non-essential items, pay more tax, which seems reasonable to me.