On 4th January, "the VAT rate goes up by 2.5%". With a typical annual inflation rate of between 3% and 4%, you may consider that to be a not-very-large increase - after all, it's only 8 or 9 months of inflation.
But hang on a minute. If I charge someone a 1000 pounds for something, and add on VAT, I'll be passing on 175 pounds to the taxman this year. Next year, I'll be adding 200 pounds to pass on - an extra £25, which is a stonking great tax increase of 14.3% ... and that's
on top of any extra tax that the taxman gets because prices are rising with inflation
A few days ago, we completed our quarterly tax VAT return and paid the government another not-inconsiderable sum of money that we had collected for him (at our expense). As from January next year, a quarterly bill of 7000 pounds (high, but not out of the question, for us) would rise by a thousand pounds and become a quarterly bill of 8000 pounds.
So if someone tells you "VAT is going up by 2.5%", they're wrong. It's going up by 2.5
percentage points ... or (if you want to quote it in proper terms)
"VAT is going up by 14.3%"
What would you say if we put our prices up by nearly 15%? I expect you would be very unhappy with us if you were a customer, and it might rapidly turn many of you into ex-customers! But the government has a monopoly so we're not given the free market choice in their case ... how very convenient for them!
(written 2010-11-03)
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