Sunday 19 October 2008

Call Me Dave and the Porkie Pies

IanPJ has this:

Mr Cameron's Conservatives are calling on the government to allow small and medium-sized enterprises to defer their VAT bills for up to six months. Thus does Mr Cameron tell us, via The Observer:

That means a typical small business with 50 employees, revenues of £5m and an annual net VAT bill of £350,000, doesn't have to find £90,000 to pay the taxman when the bank has just taken away its overdraft.
There are, however, just one or two tiny little problems with this idea. VAT is, of course, an EU tax, implemented via the VAT 6th Directive. A payment holiday on VAT would amount to a de facto reduction in the rate of tax, which is not permissible without the unanimous approval of all 27 EU member states, following a proposal to that effect from the Commission – which it not required to deliver.

That, though, might be the least of Mr Cameron's tiny little problems. Member states are required under EU law to collect VAT, a proportion of which goes to the EU coffers – known as the "own resource". Collection procedures are also defined by EU law, requiring the imposition of penalties on late payment – typically one percent per month. Changing these procedures unilaterally, guess what, is not permissible without the unanimous approval of all 27 EU member states, following a proposal to that effect from the Commission – which it not required to deliver.

Under certain circumstances, member states are entitled to adopt a simplified procedure for charging VAT, under Directive 2006/69/EC, but that does not include any provision for delaying tax payments. To the contrary, the Directive allows special provisions to enable member states to "prevent distortion of competition," which rather shows where EU priorities lie.

If these hurdles were somehow to be overcome, however, unilateral action by the UK in offering a tax holiday would certainly be considered a "distortion of competition" under Single Market rules. At the very least, Commission permission would have to be given, which will not necessarily be forthcoming.

And, since Mr Cameron's proposals affect only small and medium-sized businesses, larger firms might be moved to complain. A company like McDonalds, for instance, would have a just complaint. It regards itself as a "group of small businesses" under one banner. Fighting as it does for market share in competition with other high street outlets, it could argue that different rules on payment would most certainly distort competition.

There is also the matter of state aid. Broad-brush aid – which includes tax-breaks of any form, directed at one sector rather than applied uniformly – would most likely be considered illegal. At the very least, Commission approval would be required, which might not be forthcoming.

Then there is one other tiny little detail. Numerous studies – not least this one - have drawn attention to the danger of deferred VAT payments, making the system even more vulnerable to fraud. This is already a massive problem. Would Mr Cameron want to add to that problem?

Nevertheless, armed with his brilliant idea, that brave Mr Cameron has told Gordon Brown that he, "cannot hide from the truth." Thus adds the leader of the opposition, "In the short term, we've got to help families up and down the country with proposals to get them through the downturn."

This is stirring stuff, but with the "elephant" rampaging through the undergrowth, one wonders just who is hiding from the truth.

Hattip EU Referendum


Now Cameron has been in parliament long enough to know ALL of this, so his speech last week and his writing in The Observer are untruths. If he doesn't know all of this, then he is not bright enough to be in Parliament.

When politicians start to tell the whole truth and stop this charade and theatre about our relationship with Europe, tell the truth about the European Union competence in virtually every area of government, tell the truth about the lack of ability to act remaining in Westminster, instead telling untruths to get the quick soundbytes to win votes, then perhaps people might just believe them when they speak.

So if you run a small or medium business, no matter what Cameron is promising, you can forget about a VAT holiday, the EU wont let you.

8 comments:

Mark Wadsworth said...

That is a top post.

But what's ironic about all this is that VAT, in terms of impact of the economy, is the most damaging tax (compare to e.g. land value tax or flat rate income/corporation tax). Even the European Central Bank's research confirms it.

Trixy said...

It's a regressive taxation, the burden is on the supplier to collect and most damaging of all in my book is that it gives money to the EU for them to try ruin our lives with.

David Vance said...

You're right.

That's why Cameron is such a disaster. He has an open-goal and he kicks the ball into his OWN net. How I despise kipper conservatives - two-faced and gutless.

Anonymous said...

" A payment holiday on VAT would amount to a de facto reduction in the rate of tax, which is not permissible without the unanimous approval of all 27 EU member states"

As I understand it VAT is paid quarterly. All Mr Cameron is suggesting is extending the period between collection of VAT by the business, and payment to the taxman.

That is not a reduction in the rate of tax, and I don't see that it would require the involvement of the EU.

It's intended to improve cashflow, at a time when banks are limiting/reducing overdrafts. It strikes me as a very good example of constructive government action.

Oswald Bastable said...

Ah- the EU!

Q- What's invisible and looks good on Brussels?




A- Panzer trackmarks

Dr Evil said...

What we need of course is some backbone in our politicians and some unilateral action re witholding our vast mountain of cash from the EU until their accounts are signed off. No bugger that. Just let's keep it and tell them they also won't get any landfill tax aka a fine either. Theiving bastards. It's about time there was a fight back. Anyone saying 'you can't do that' needs to be reminded that we have a big armed forces, even in these days of stingy Nu Labour, who are well trained and combat ready. So they can really be told just to fuck off or else. One can dream.

Anonymous said...

I think Mr Cameron gave a pretty good explanation of his position on the Today Programme.

(Hat tip, Coffee House)

Simon Fawthrop said...

Business only collect charge and collect VAT, it should not form part of their business case or cash flow management. If business managers are so inept that they need to rely on the money to save their business then we really don't want them holding on to the (our) money any longer than they already do.

BTW, I'm persuaded by Mark's VAT arguments and would prefer to see it scrapped.

PS Yes I have run a business and done VAT accounting so know what a pain it is.