Just scrap VAT altogether.

It is a grossly unfair and complex tax which should never have been introduced. Increase income tax to make up the loss and then we can give the poor some breaks on it. With VAT, the poor are taxed much harder than the rich, as a proportion of their income and it's very hard to give them any reduction in the rate they pay.

well, well, well I can not remember ever seeing the phrases "Gordon Brown" and "think" in the same sentence before! :)

FWIW the concept of VAT is very, very simple & efficient tax (cheap to collect) . . . it is now a tax made extremely complicated with only one purpose I can see . . . to keep herds of civil servants in employment roaming around the UK & EU making up ever more devious & complex rules and then checking up our compliance with the same

if this rats nest of regulation / law means that there is opportunity for fraud it's not really surprising is it??

the answer is so simple but it requires a chancellor with a basic understanding of business & trade so that's not going to ever happen is it? of course not! (as a History of Art degree or similar seems to be the key prerequisite for a job as an MP)

. . . . . just remember the average MP thinks that the 'government' should "regulate the internet" - I rest my case!

It's a mess, examples

+++++

The recipient of the goods is different from the purchaser:

1. If I take an order from a customer in country X for delivery as a gift to a person in country Y. If you fail to include a VAT invoice the country Y will occasional block the packages to asses their value is under the gift limit.

But if you include an invoice, then aunty-flo gets to see how much her gift costs. Either way it's a lose-lose situation.

+++++

Buying goods from other countries:

2. I buy goods from country X, I am in country Y, a B2B transaction. The supplier is supposed to check the VAT number is for that business, and that the goods are used for business purposes at the time of sale. Failure to do so, means they can be liable for the VAT themselves.

So in practice nobody does this for one time orders, it would be too difficult and risky. So instead they always add on VAT, but you can't claim that VAT back in your home country, because it was wrongly added on! One time purchases of goods from the EU is always about 12% more expensive due to this erroneous tax.

+++++

Self employed registration for VAT used as Work Permit

3. Some countries, Belgium is an example, won't issue VAT ids to self employed people unless they a) pass a test, or b) prove they were self employed in another EU country. But b) doesn't work, they ask for documents which don't exist showing unnecessary info, and the test in a) is in French, Dutch or German, creating a language barrier. Without a VAT code, you can't work, so it's a defacto Work Permit.

+++++

VAT for distant sellers

4. If you sell more than 100k in goods to another country, you are required to register for VAT in that country. Which of course requires you to know that countries VAT rules, it's language, it's forms,..... So you sell 100k of goods, make 10k of profit, and end up paying 20k in accounting fees to make a loss.

+++++

What I think they should do with EU vat.

I think,

1. I should be able to sign up to one VAT agency.

2. I should be able to use that agency for all EU wide declarations.

3. I should be able to keep that VAT code whereever I work.

4. VAT is charged on all sale of goods, no difference between B2B and B2C.

5. The VAT is charged at the rate of the buyers country.

6. He can claim it back in his home country if he is a business and it's for business use.

7. The VAT for all the countries is declared on the single form, broken down by country. e.g. $25000 at 16% MwST Germany, $30000 at 17.5% UK, ...

8. Countries cooperate on sending each other the vat payments, and periodic random checking that the sellers and buyers invoices match up.

I've often wondered why business-to-business transactions have to pass cash up the chain and then reclaim it from their VAT payments.

Wouldn't it be a lot easier if business-to-business transactions didn't require this money to slop around. Sure, obligate the supplier to validate that their customer is a bona-fide business (and charge VAT if necessary), but just stop the default VAT charges.

With no money floating around the system they'd be no VAT fraud. Also there would be less temptation for ailing businesses to 'dip into' the VAT account.

Or is this too simplistic?

Brown cannot do a blind thing to change the rules on VAT. Our treaty obligations to the EU require us to follow the rules they lay out, no matter how daft or inconsequential they are, and changes to those rules require unanimity. Even if it was one of those areas with qualified majority voting we'd still lose.

The problem is, VAT is a stupidly complicated tax. Changing and tweaking won't solve the problem, as the article has already laid out, because the very nature and existence of the tax opens it up to fraud. The solution would be to repeal it and return to levying a sales tax.

Graham,

if you think that VAT complexity is EU driven you really are mistaken mate

simply put; if that was the case then VAT rules would be the same in each EU country - one thing they sure ain't ! (I work throughout the EU)

VAT is (OK, _was_) a simple concept and not easy to avoid - unlike Income Tax which, let's be fair - we all know whole sections of our community just don't pay

FWIW

Mav

(an accountant who qualified some 35 years ago so has seen so much new VAT legislation it makes me cry)

There are those in the US (let's, for simplicity, call them Democrats) who argue that a VAT would be simpler than the arcane income tax. Let "the poor" file a form for a rebate of what they pay.

Perhaps advocates of this should investigate how it really works.

Maverick, I never said the complexity was EU driven. If there's one thing I despise more than the EU, it's our own government's rather unique attitude toward implementing EU directives in the most arcane and impenetrable way possible. My point was that Vat, while it seems simple in concept is, by its nature, a needlessly complex in practice for both the revenue and the people being taxed. A straight sales tax would be much simpler to administrate and cost a lot less to levy, as well as reducing the amouont of money sloshing back and forth. Of course it'd also put several thousand jobsworths at the inland revenue out of work as well.

But that's all besides the point. We can't make fundamental changes to the VAT system without getting a unanimous vote from the council of ministers. Given Brown's own rather lacklustre attendance of, and attitude toward said council it's unlikely they'll be keen to even listen to any changes the UK suggests, let alone vote for them.

Solutions are simple. Consequences are complex. Either centralised EU VAT office or no intercountry VAT reclaim. Current half way house a delight of beaurocrats (French word).