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Happy Birthday VAT

Indeed, Happy 40th Birthday to our very first present from the then Common Market, the imposition of which was a condition of Britain joining.

Designed by French tax expert Maurice Lauré in the postwar years and first levied in the UK on April Fools’ Day 1973, VAT is now the government’s third largest source of revenue after income tax and national insurance.

But what started out as a simple, easy to collect tax – a low, flat rate imposed on most goods and services – has become increasingly complex, with exemptions for everything from children’s clothes to Jaffa Cakes.

“The initial idealistic hope that it would be a simple tax, easy to apply, has constantly been eroded because there are always special lobbies,” said Deloitte tax expert Daniel Lyons. “Politics and economics got in the way of simplicity.”

In the far off halcyon days of 1973, chancellor Anthony Barber introduced a flat rate tax of 10%

Paid by the buyer but collected by the seller, it is still one of the cheapest taxes for HM Revenue & Customs to administer because it requires businesses to act as tax collector.

It even had its own, user-friendly tribunal, where business owners could represent themselves when pleading their case.

But just one year in, Labour chancellor Denis Healey began to muddy the waters. He reduced the standard rate to 8%, but introduced a higher rate of 12.5% for petrol and some luxury goods, doubling the upper rate later that year to 25% before lowering it in 1976.

In 1979, the higher rate was abolished and the standard rate increased to 15%, where it remained until Conservative chancellor Norman Lamont increased it to 17.5% in 1991. Lamont also imposed an 8% rate on domestic fuel and power, which had previously been zero-rated.

The 1997 general election swept Labour to power and with it came a new series of tweaks and exemptions. Gordon Brown brought domestic fuel and power down to 5%, and knocked money off the rate for home insulation materials. He applied his own moral stamp, with VAT reductions on nicotine gum and other stop-smoking products, along with contraceptives, tampons and children’s car seats.

The recent banking crisis brought further changes, when Labour chancellor Alistair Darling cut the rate to 15% from December 2008 in an attempt to boost consumer spending. The discount was short-lived; a year later the rate was returned to 17.5%.

On 4 January 2011, the current chancellor, George Osborne,  introduced a 20% rate – a centrepiece of the coalition’s austerity drive – meaning in 40 years the tax rate on goods and services sold in the UK has doubled.

VAT appeals have become expensive and complex, too. Bringing a case can cost £100,000, says Lyons at Deloitte, with most businesses choosing to hire accountants, lawyers and senior barristers instead of representing themselves.

I have been an unpaid collector of VAT in since 1985. You’d think that in a pet store applying VAT would be simple yes? After all pets are luxuries and VAT is payable on all luxuries……..

Pictured: Contributor and freeloader

Pictured: Contributor and freeloader

But……but……Guinea pig food has VAT on it, rabbit food doesn’t (although some pre-packed rabbit food does). Bird seed has VAT on it………unless it is for wild birds or pigeons in which case it doesn’t. Dog food? well surely dog food has VAT on it? Well yes, unless it is labelled as working dog food when it doesn’t.

Striped sunflower seed. Source of revenue.

Striped sunflower seed. Source of revenue.

Black sunflower seed. The VAT man say no.

Black sunflower seed. The VAT man say no.

Then there’s ferret food. Ferret food doesn’t have VAT on it.  Rat food and hamster food do. What about books? They don’t have VAT on them. Black sunflower seed doesn’t have VAT, but stay away from those 20% rated striped ones. Peanuts? nae VAT. Pine nuts? VAT. Frozen dog and cat food? no VAT. Frozen mice and rats to feed snakes? What do you reckon?…………No VAT.

Almost human. No VAT on his food either.

Almost human. No VAT on his food either.

Woe betide any VAT registered business who is late in paying their VAT. I remember once, about six years ago, I was one day late with my payment. At that time electronic payments weren’t made on bank holidays and I had scheduled my payment for a day that unknown to me, was an English, but not a Scottish, bank holiday.

When the notice came in to inform me that my payment had been late and that any repetition within 18 months would mean penalties, I appealed. I pointed out that this was the first time my payment had been late in 22 years and that I had no knowledge of the English bank holiday. I asked that in these circumstances the appeal should be upheld.

The reply was (and I may paraphrase here slightly) Dear sir, Please go and take a long run and f*ck to yourself.

Anyway, happy birthday VAT, the EU in microchosm. Complicated to administer, unfair, non progressive and resented.

Unless you spend all your time reading your ferrets bedtime stories.

Thanks to The Guardian

Further reading here
here and here

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