Mortgage rates / interest etc

[J-G]

Never really got my head round VAT, always advised to avoid getting involved. Looks like a case of findingthe missing £20!

I sell you a chair for £100 + vat so you give me £120, you then get the £20 back from government which means I must pay the government £20 so why bother, it is like that tenner that goes back and forth in a birthday card where there is no gain.

A very poor explaination of how V.A.T. works!

I buy a chair at £80 and pay £16 VAT. Because I'm registered for VAT I can claim that £16 back so my nett cost is £80. I then sell you that chair for £100 + VAT (£120), you (not being VAT registered) cannot claim the £20 back. I now have to pay the £20 I've charged you to the VAT Man. The value that has been added to the chair is £20 and the VAT due on that amount is £4 - which is the net amount that the VAT Man gets - £20 charged and £16 reclaimed.

Simples!

The manufacturer of the chair will also have increased it's value (taken a profit) and will have accounted for the VAT on that as well.

 

[akirk]

And because it is value added tax, effectively at each point along the process vat is charged and reclaimed, but generally as things go up in value through a manufacturing process, there is a nett gain to the government each time…

So manufacturer charges 10 vat and reclaims 8
Wholesaler charges 14 vat and reclaims 10
Distributor charges 18 vat and reclaims 14
Retailer charges 20 vat and reclaims 18

They effectively pay the government:
2 / 4 / 4 / 2 a total of 12 which reflects a tax on the value being added at each stage - ultimately the non registered punter pays all of the vat but it is paid to the government in stages…

(The difference of 8 between the incremental payments of 12 and the final punters payment of 20 is vat charged by the raw material suppliers before the chair is made - screws / timber / etc - so that is also paid by them at the front of the chain…)

Of course it is far more complex in reality as there can be different vat rates and not every company is vat registered or even on the same vat process, so it is a principle not a fixed formula

Eg if my company produces a website for a client abroad VAT is variable - if their audience includes the UK then we charge VAT (and they probably can’t reclaim it), but if for local use only it is zero rated…

 

[Jacob]

Yes and no. LOL

Yes that they (and other things) are deducted from income to arrive (eventually) at Profits Subject to Tax.

No - you have to pay Employers NI, so a tax of a kind.

But you don't pay corporation tax on it, which is what we are talking about, so it's a yes. It counts as another allowable expense

 

[johna.clements]

Money does not vanish. I mean, i guess you can have a bonfire, and just throw cash on it, but in general...

I would not recommend trying this as you are not supposed to deface the currency but

From Bank of England

"In a very small number of cases, we may be able to reimburse you if you have less than half of the banknote but there is clear auditable evidence that genuine banknotes have been damaged or destroyed. This typically only applies to businesses, for example when the damage has been caused by a fire in an ATM."

 

[deema]

Final attempt using an analogy.
You open a new restaurant. You can charge anything you like obviously for the food you serve. Your choice is to either go top end for the area, and charge an average of £25 per meal, or to charge £12 a meal. You know your competition locally who serve just as good food as you, are charging an average of £12 a meal.

If you charge £25 a meal, you will make more money per customer, but have fewer customers. If you charge £12 a meal, you will make less money but have more customers.

Your a bit canny and decide to charge £11 on average a meal. Your still making money, but now you get a lot of customers, in fact the place is swamped when ever your open. Your very happy, your making a lot of money. You can pay your staff more, and encourage them to do better by offering a percentage of the takings as a bonus. Business is brilliant, everybody is happy.

A restaurant near to you, who is charging £25 on average a meal catches up with you in the pub, they complain that business is poor, they don’t have many customers. They need to increase wages and they think the only option is to increase prices, but, they recognise to do so will mean they will lose more customers to you.

Why’s it an analogy, well the UK corporation tax rate is 25% and Ireland has £12%. Which business do you want to own? Where would you eat?

 

[johna.clements]

no - in accounting terms you do not pay corporation tax on expenses - to most businesses (and the ones we are discussing) - VAT is a neutral tax - you supply a chair to me at £100 + VAT, I pay you £120 and I reclaim the £20 - so the VAT is neutral. If you are referring to VAT on expenses - that is always reclaimable if Company A is VAT registered.

besides - VAT is charged on supply, not on purchase - so, the UK government would have no ability to put VAT onto the supply from another country.

Company A will have the payment for brand / IP on their accounts, and it will be visible, but it can't be directly taxed as you don't tax expenses - you tax the company that receives the payment not the one making the payment - and Company B is not in the UK's area, so can not be taxed by them.

Directors work for their shareholders (the company is simply the mechanism) - if Company A is owned by Company B, then Company B is the shareholder of Company A - and the directors must work for the benefit of their shareholders, so in this case MUST work for the benefit of Company B - that is the law!

If both are owned by a third party Company C, then that is the shareholder, so they must work for the benefit of Company C - same outcome.

Ultimately I am not sure this is a discussion worth continuing unless all concerned actually understand how companies work
What Amazon and other multinationals are doing is not illegal - it is fully compliant with all British legislation - anyone can shout loudly that they want them to be taxed more and lots will agree - but it is a meaningless desire unless there is an environment in which the UK government has a right to tax them!

Get the environment right first and you will be seeing far more tax - but put simply that means making your country a low taxation area - as Ireland have done, and many others, and not surprisingly International companies who can choose where to do transactions / where to establish / where to base contracts, choose those countries... So, there really is no logic based in simply increasing corporation tax - all you will do is hurt the small national companies - a very naive approach to building support for business - low taxation will end up with more money in the coffers, and more employment - it is really that simple and proven time and time again...

As I have stated on a number of occasion the UK has the ability to make law. Some will be bad law, some good, but that is a different thing.

John posts "I only have a small workshop with a benchsaw. I can not feed sheet goods through the saw and and am thinking of getting a track saw. Thoughts
kirk posts. "You will just have to use the benchsaw"
John "Why can't I get a tracksaw"
kirk "You will just have to use the benchsaw"

Arguing that because a law has not been passed it can not be passed is a bit strange. It is like arguing that I can not buy another tool (law) because I already have a tool (law).

 

[johna.clements]

Final attempt using an analogy.
You open a new restaurant. You can charge anything you like obviously for the food you serve. Your choice is to either go top end for the area, and charge an average of £25 per meal, or to charge £12 a meal. You know your competition locally who serve just as good food as you, are charging an average of £12 a meal.

If you charge £25 a meal, you will make more money per customer, but have fewer customers. If you charge £12 a meal, you will make less money but have more customers.

Your a bit canny and decide to charge £11 on average a meal. Your still making money, but now you get a lot of customers, in fact the place is swamped when ever your open. Your very happy, your making a lot of money. You can pay your staff more, and encourage them to do better by offering a percentage of the takings as a bonus. Business is brilliant, everybody is happy.

A restaurant near to you, who is charging £25 on average a meal catches up with you in the pub, they complain that business is poor, they don’t have many customers. They need to increase wages and they think the only option is to increase prices, but, they recognise to do so will mean they will lose more customers to you.

Why’s it an analogy, well the UK corporation tax rate is 25% and Ireland has £12%. Which business do you want to own? Where would you eat?

This is a false analogy.

The new restaurant charging £11 is not competing against the restaurant charging £25. The restaurants are after different sectors of the market.

The £11 restaurant is competing against the £12 restaurant.

 

[johna.clements]

People who think that taxes can not be applied to either party in a transaction should read the thread Sauter Shop and import taxes.

 

[Keith 66]

This is a false analogy.

The new restaurant charging £11 is not competing against the restaurant charging £25. The restaurants are after different sectors of the market.

The £11 restaurant is competing against the £12 restaurant.

Nobody wins the race to the bottom.

 

[Jacob]

Final attempt using an analogy.
You open a new restaurant. You can charge anything you like obviously for the food you serve. Your choice is to either go top end for the area, and charge an average of £25 per meal, or to charge £12 a meal. You know your competition locally who serve just as good food as you, are charging an average of £12 a meal.

If you charge £25 a meal, you will make more money per customer, but have fewer customers. If you charge £12 a meal, you will make less money but have more customers.

Your a bit canny and decide to charge £11 on average a meal. Your still making money, but now you get a lot of customers, in fact the place is swamped when ever your open. Your very happy, your making a lot of money. You can pay your staff more, and encourage them to do better by offering a percentage of the takings as a bonus. Business is brilliant, everybody is happy.

A restaurant near to you, who is charging £25 on average a meal catches up with you in the pub, they complain that business is poor, they don’t have many customers. They need to increase wages and they think the only option is to increase prices, but, they recognise to do so will mean they will lose more customers to you.

Why’s it an analogy, well the UK corporation tax rate is 25% and Ireland has £12%. Which business do you want to own? Where would you eat?

Some confusion here!
Any of your examples could be just ticking over and breaking even, or even making a loss, in which case it pays no corporation tax.
Or could be making a profit and hence taxable.
But has the alternative of reducing the profit by increasing wages (including your own if you work there) or reinvesting in the company (buying new kit, building improvements, whatever) and paying less tax.
Could reinvest all the profits and pay no corporation tax at all.
The downside is less payout of dividends, but a smart investor might spot a growing business with the promise of greater profits/dividends in the future, and still buy shares.
Hence corporation tax is an incentive to grow and improve your business.

 

[johna.clements]

Nobody wins the race to the bottom.

That is debatable. The argument is that the £12 restaurant would close and open as something else.

My argument that all the resturants should be subject to the same rules.

 

[akirk]

As I have stated on a number of occasion the UK has the ability to make law. Some will be bad law, some good, but that is a different thing.

John posts "I only have a small workshop with a benchsaw. I can not feed sheet goods through the saw and and am thinking of getting a track saw. Thoughts
kirk posts. "You will just have to use the benchsaw"
John "Why can't I get a tracksaw"
kirk "You will just have to use the benchsaw"

Arguing that because a law has not been passed it can not be passed is a bit strange. It is like arguing that I can not buy another tool (law) because I already have a tool (law).

Of course government can change law - but some changes may be foolish - and as Liz Truss has recently seen, messing with the markets too dramatically can have some interesting consequences!

However, there is a fundamental basis that you don't charge tax on expenses - i.e. you don't tax the purchaser directly, simply because you need to collect that tax and some purchasers are members of the public with no mechanism for being taxed in that way. e.g. As a business I buy insurance, I can buy from anywhere in the world, so will buy from Ireland as it is cheaper... the government thinks, I want a bit of that and will tax the transaction:
- taxing the seller - there is a mechanism to do that and collect tax, but the Irish seller is out of the government's reach...
- taxing the buyer - maybe fine for a commercial buyer, but now fred bloggs also wants some insurance - he needs to now pay tax on it - how are you (the Gov.) going to collect that tax?

I think that you are viewing all of this as a simple equation between UK government and a business (e.g. Amazon in the UK) - however, it is never that simple, there are huge complexities in how a business is / can be structured, and the impact of laws - ultimately, the businesses tend to have cleverer people who get past the increasingly complex machinations of governments - and why not, they have the advantage of being able to chose any location to transact / etc.

That is why my argument is not that the current system works - I agree, it is not ideal - but that the solution is not the communist / left wing approach of penalise those who do well and then we will all be the same - it has been tried, it fails! But the true conservative (with a small c) approach of allowing more freedom and relaxing legislation to make it easier - get businesses to locate here and we will end up with more taxes in the coffers...

People who think that taxes can not be applied to either party in a transaction should read the thread Sauter Shop and import taxes.

I am not sure what relevance that thread has
and no-one is saying that a government can't apply taxes to both parts of a transaction - of course they can (e.g. I sell you a house, I might pay capital gains tax, you might pay stamp duty etc.) - the point being made (and generally ignored!) is that a government can not legislate in a way to force what happens in another territory

the Sauter Shop example is simply the government saying that if you want to sell into this territory you need to do xyz - that is okay because the government governs what happens in this territory...

If you walk into Sauter and buy something, then there is no need for them to register with HMRC as the transaction happens in a territory outside the control of the government - the government can then choose to charge you on importing that item into the UK because that is coming into their territory = their rules... but would then be taxing you as the person bringing it in, not Sauter who are beyond their control.

this whole discussion started with the concept of fees passing across territorial boundaries to avoid taxes in the UK - because those fees are for something intangible, and the transaction takes place outside the UK and is governed under non-UK law - it is beyond the reach of the UK government - it is not in their territory. There is nothing physical coming into the UK to be taxed.

 

[akirk]

That is debatable. The argument is that the £12 restaurant would close and open as something else.

My argument that all the resturants should be subject to the same rules.

And who sets those rules when you are dealing with a world wide scenario?
We have no global dictatorship and while the EU tried to go in that direction, it is hugely flawed and that direction was a major reason why the UK left.

Government can only legislate in its territory.
Within that territory, all businesses have to comply by the law
That some businesses are internationally based gives them choices not given to more local businesses - fair - yes, because it is equal opportunity, those other businesses can equally set up a company abroad and move stuff around to minimise taxes - that they choose not to doesn't make it unfair when the bigger businesses do...

The only thing that is unfair is that a bigger business has easier access to these things - but then being bigger also has access to cheaper stationery / bulk buying of paper towels for the loos etc. i.e. there will always be advantages to scale, that is life...

 

[julianf]

Final attempt using an analogy.
You open a new restaurant. You can charge anything you like obviously for the food you serve. Your choice is to either go top end for the area, and charge an average of £25 per meal, or to charge £12 a meal. You know your competition locally who serve just as good food as you, are charging an average of £12 a meal.

If you charge £25 a meal, you will make more money per customer, but have fewer customers. If you charge £12 a meal, you will make less money but have more customers.

Your a bit canny and decide to charge £11 on average a meal. Your still making money, but now you get a lot of customers, in fact the place is swamped when ever your open. Your very happy, your making a lot of money. You can pay your staff more, and encourage them to do better by offering a percentage of the takings as a bonus. Business is brilliant, everybody is happy.

A restaurant near to you, who is charging £25 on average a meal catches up with you in the pub, they complain that business is poor, they don’t have many customers. They need to increase wages and they think the only option is to increase prices, but, they recognise to do so will mean they will lose more customers to you.

Why’s it an analogy, well the UK corporation tax rate is 25% and Ireland has £12%. Which business do you want to own? Where would you eat?

So all restaurants should charge £12 meals?

Surely then one will think "we need to be able to charge £8, lets cut back on that healthcare package we offer our employees"

And so they charge £8

Then all the people, like yourself, describe it again, and say that the only way to progress out of this situation is to lower the prices to £8. As then there will be more customers, and more money to the till. But there really isn't any way to actually do this, so they have to loose the paid health care. Its fine though, as otherwise everyone will just be out of a job, so its what has to be done. (maybe call this austerity?)

So then everyone is charging £8. But someone thinks that if you get 14yr olds doing the dishes, a few quid can be saved that way. (the reality is that then, if they were a big enough restaurant, they would probably, somehow, get the government to pay the wages of the 14yr olds anyway - maybe call it something snappy like "learning tax credits" or something?)

But then everyone is charging £6, we have no healthcare, and the chimney sweep is a 6 yr old child.



Its always the same old argument told time and time again, with increasing amounts of effort to make it believable, as if that will somehow cover up the flaws.

If don't know - you tell me why my modified restaurant example above is inaccurate? Because everyone is somehow going to be so rich that theyre eating out all the time, and the cyclical nature of the expanded economy is going to smooth over all the flaws?

But then what if someone starts skimming off a load of the cash. What happens then?

 

[johna.clements]

Of course government can change law - but some changes may be foolish - and as Liz Truss has recently seen, messing with the markets too dramatically can have some interesting consequences!

However, there is a fundamental basis that you don't charge tax on expenses - i.e. you don't tax the purchaser directly, simply because you need to collect that tax and some purchasers are members of the public with no mechanism for being taxed in that way. e.g. As a business I buy insurance, I can buy from anywhere in the world, so will buy from Ireland as it is cheaper... the government thinks, I want a bit of that and will tax the transaction:
- taxing the seller - there is a mechanism to do that and collect tax, but the Irish seller is out of the government's reach...
- taxing the buyer - maybe fine for a commercial buyer, but now fred bloggs also wants some insurance - he needs to now pay tax on it - how are you (the Gov.) going to collect that tax?

I think that you are viewing all of this as a simple equation between UK government and a business (e.g. Amazon in the UK) - however, it is never that simple, there are huge complexities in how a business is / can be structured, and the impact of laws - ultimately, the businesses tend to have cleverer people who get past the increasingly complex machinations of governments - and why not, they have the advantage of being able to chose any location to transact / etc.

That is why my argument is not that the current system works - I agree, it is not ideal - but that the solution is not the communist / left wing approach of penalise those who do well and then we will all be the same - it has been tried, it fails! But the true conservative (with a small c) approach of allowing more freedom and relaxing legislation to make it easier - get businesses to locate here and we will end up with more taxes in the coffers...



I am not sure what relevance that thread has
and no-one is saying that a government can't apply taxes to both parts of a transaction - of course they can (e.g. I sell you a house, I might pay capital gains tax, you might pay stamp duty etc.) - the point being made (and generally ignored!) is that a government can not legislate in a way to force what happens in another territory

the Sauter Shop example is simply the government saying that if you want to sell into this territory you need to do xyz - that is okay because the government governs what happens in this territory...

If you walk into Sauter and buy something, then there is no need for them to register with HMRC as the transaction happens in a territory outside the control of the government - the government can then choose to charge you on importing that item into the UK because that is coming into their territory = their rules... but would then be taxing you as the person bringing it in, not Sauter who are beyond their control.

this whole discussion started with the concept of fees passing across territorial boundaries to avoid taxes in the UK - because those fees are for something intangible, and the transaction takes place outside the UK and is governed under non-UK law - it is beyond the reach of the UK government - it is not in their territory. There is nothing physical coming into the UK to be taxed.

Money is being transferred out of the UK. Many countries have laws on the transfer of money. The UK could enact a law to tax money before its transferred.

There are pros and cons in such a law but that does not stop it being possible.

 

[johna.clements]

And who sets those rules when you are dealing with a world wide scenario?
We have no global dictatorship and while the EU tried to go in that direction, it is hugely flawed and that direction was a major reason why the UK left.

Government can only legislate in its territory.
Within that territory, all businesses have to comply by the law
That some businesses are internationally based gives them choices not given to more local businesses - fair - yes, because it is equal opportunity, those other businesses can equally set up a company abroad and move stuff around to minimise taxes - that they choose not to doesn't make it unfair when the bigger businesses do...

The only thing that is unfair is that a bigger business has easier access to these things - but then being bigger also has access to cheaper stationery / bulk buying of paper towels for the loos etc. i.e. there will always be advantages to scale, that is life...

The UK Government legislates for things outside its territory, as does the US and others.

 

[akirk]

Money is being transferred out of the UK. Many countries have laws on the transfer of money. The UK could enact a law to tax money before its transferred.

There are pros and cons in such a law but that does not stop it being possible.

No it is not.

Money being transferred is to place it in a bank account elsewhere - this is a simple commercial transaction where product A is being bought for xxx and the location of the sale happens to be in a different territory. Purchasing from abroad happens the whole time - if the government started to tax that, then they are effectively taxing imports - and that will screw with all their trade agreements internationally...

while a government has power to enact law, it doesn't have the ability to ignore the consequences

The UK Government legislates for things outside its territory, as does the US and others.

only where it has a legal ability to do that - you really aren't getting this are you - what is being done is happening because it is legal, it can't be stopped (not without drastic and stupid actions such as locking down all trade with other countries! )

 

[julianf]

That is why my argument is not that the current system works - I agree, it is not ideal - but that the solution is not the communist / left wing approach of penalise those who do well and then we will all be the same - it has been tried, it fails!

Do you know the difference between, say, a democratic socialist, or a social democrat? Or is it all just Siberian gulags to you?


What country is the second most powerful economic block? China. Don't they call themselves communist?

I mean, they're not, but neither was soviet Russia.

What about Norway, with its sovereign wealth fund? Where did that come from?

I don't know why people always call Soviet Russia communist, but shy away from the fact that the second most powerful economic country on the globe calls itself communist. I mean, neither were, but the bias always draws my attention.




note - personally, I'm a market socialist, which, i can assure you, is nowhere near a communist

 

[johna.clements]

No it is not.

Money being transferred is to place it in a bank account elsewhere - this is a simple commercial transaction where product A is being bought for xxx and the location of the sale happens to be in a different territory. Purchasing from abroad happens the whole time - if the government started to tax that, then they are effectively taxing imports - and that will screw with all their trade agreements internationally...

while a government has power to enact law, it doesn't have the ability to ignore the consequences



only where it has a legal ability to do that - you really aren't getting this are you - what is being done is happening because it is legal, it can't be stopped (not without drastic and stupid actions such as locking down all trade with other countries! )

If a company is doing business in the UK that that transaction is taking place in the UK.

 

[Jacob]

I keep trying to catch up on economics and money and keep having to look things up.
I get the impression that everybody is in the same boat and perhaps needs to spend more time on revision!
Just reading "Economics for the Many" (Ed. J McDonnell)
The first essay makes the same point and says a democracy is weakened if people don't understand the issues. In fact elections may be decided on financial matters and the state of the economy, so it's essential that people try to understand what is really going on, not least because politicians and financial dabblers don't have much idea themselves!