A View on VAT

Whilst conducting research into my forthcoming book on the murkier side of the VAT system, I came across this fascinating article from a US website. Currently, the US employs a system of purchase tax, levied on the retailer and appearing separately on till receipts. The writer is concerned about the introduction of VAT and the implications thereof. He is not wrong. I recall discussing this topic with an officer of Her Majesty’s Customs & Excise back in the late 1980s, who stated quite categorically that Customs wished to see a great reduction in the number of businesses operating within these borders. “It would be much easier for us if everyone shopped at Tesco,” he said. Wouldn’t do much for competition, though, would it?

The current system in the UK and Europe does seem to allow for fraud and the misappropriation of Government funds on a massive scale, yet precious little is ever done to counteract it. During the early 2000s, when figures were released more regularly, it would seem that upwards of £8 billion pounds per annum were being siphoned off from the UK economy, “…enough to build 200 hospitals…” Perhaps those hospitals would be needed to treat all the Whitehall staff trying to cope with the stress of losing all that money. VAT has existed within the UK for 40 years. During that time, how much money has actually disappeared? Each year, a few fraudsters are thrown into jail, serving anything from a few months to several years, yet the sums never seem to add up. The very nature of VAT means that each company in a chain is responsible for a portion of the 20% VAT profit element. A classic split in a VAT fraud would be 2.5% for the missing trader, 1% to 2% for the traders, 5% for the exporter and anything up to 6% for the overseas “handling company”. The full amount of VAT is never recovered by the authorities, nor indeed is it brought into question in trials. “Conspiracy” is always the mantra from the prosecuting QC, yet it would seem that all conspirators are not equal.

If it is so easy to extract VAT from the system, why is it so difficult to trace the money? With the increase in CCTV and ever more sophisticated banking software, why is it that so many of the companies and individuals involved in money laundering are simply ignored by the law enforcement agencies? Are they really that indifferent as to where the largest part of the cash has gone? Perhaps there is a darker, more sinister side to VAT after all.

More to come.

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