From: Ronald Raygun 
Subject: Re: value added tax
Newsgroups: uk.finance
Date: Sat, 06 Sep 2003 17:27:58 GMT

Stephen Burke wrote:

> Ronald Raygun  wrote:
>> The intention is clear, that it is a sales tax designed to be paid
>> in full by the end user.  I believe that where a VAT-registered
>> business *is* an end-user of equipment used in production, it should
>> jolly well pay up like everyone else, and not be allowed to reclaim
>> the input VAT.
> 
> Not only is it not clear, it isn't the intention. VAT is a tax on the
> total value added by a company, i.e. the difference between sales and
> input costs.

Nonsense.  VAT is not a tax on value added by anyone, it is a tax
on the total value which the end user gets.  That happens to equal
the sum of the bits of value added at each stage in the chain of
production, and it also happens to be how it's administered, but
the point is that all of the actual tax is paid by the end user.

All I'm suggesting is that inputs to a middleman which don't
have corresponding outputs should make the middleman count as
end user of those inputs.

> Doing it the way you suggest would mean that the tax wasn't
> independent of company structure.

Correct.  If you think that would be a bad thing, then why?

> Consider a completely integrated company
> which does everything in house; it would have no input VAT because it
> would have no input. Now suppose it outsources some thing like catering
> and payroll; it has to pay VAT on those, and by your argument that VAT
> would not be reclaimable, hence the total tax paid would increase.

Correct.  So that would be one of many factors to be taken into
account when deciding whether outsourcing makes business sense.
Nothing wrong with that.