VAT - what's the point?

[James]

OK, in the old days, I guess it made sense for businesses to charge other businesses VAT up-front and then for the buyer to claim the VAT back via submitting relevant paperwork to HMRC.

I say it made sense, because HMRC (or equivalent) wasn't technologically sophisticated enough to determine in real time if the buyer was a business, so had to rely on receiving the paperwork to run the checks. But surely those days have changed, haven't they?

All this VAT charging and reclaiming seems so completely pointless to the primary business activities of so many, and it's disruptive to cashflow. Isn't it time it was updated?

 

[Edwin]

It still makes sense, because if you're not VAT registered businesses selling to you still have to charge you VAT, you just end up paying 20% "more" than a VAT-registered business would.

 

[James]

It still makes sense, because if you're not VAT registered businesses selling to you still have to charge you VAT, you just end up paying 20% "more" than a VAT-registered business would.

It's greed from HMRC. They know that many smaller businesses couldn't be bothered with the hassles of registering for VAT so will have to take the hit.

But if you could provide your VAT registration number to a supplier, they could remove the VAT at source which would greatly simplify VAT for businesses and HMRC as well because you would only need to deal with VAT collected rather than collected and paid/

I agree. At the very least it should be this. But I'd like to see it go further than that. In an ideal world, B2B transactions should never include VAT (whether or not the business is registered). I'd like to see something like that introduced.