Why is VAT charged on top of duty? Swindle?

Leonard_H_Martin

This was brought to my attention earlier today. For example, if you buy petrol (I guess most of us do) the VAT is calculated on retail price + duty! So effectively you pay a tax on a tax!

Let's look at some figures:

If you bought 10 litres of petrol at £1 per litre today you'd pay £1.30 in VAT.

If VAT was calculated only on the retail price (as I think it should) you'd only pay 49 pence in VAT - a huge 81p saving!

Now I typically fill up with 50 litres per week - so that'd save me £4.05 a week - or £210 per year! And that's just on petrol, never mind all the other things you pay duty on!

How can this be a fair (or even legal) tax system?

nexuss

The Govt will not say what the fuel tax is used for when they were asked to break down the costs.£50 of fuel would consist of £32 tax to the Govt for example.

robpitt

Psycologicaly tax on tax is upseting but I can't think of an obvious simpler way VAT could be administered.

Creating special rules to apply VAT differently to items that have previously had a duty element applied to them would be a admin nightmare ... if the goverment really wanted to give us some money back it could just reduce the duty.

david39

So where would the government raise the 81p per litre from that they would be losing by changing the VAT / duty system? Put up VAT on everything to 25%, maybe, or just close a few hospitals or schools?

This is an old chestnut that was first raised thirty-odd years ago when VAT was first introduced. There was a huge lobby at that time that was trying to get it amended but it got nowhere and I don't think it is likely to be changed now.

RayWolfe

Leonard_H_Martin wrote: »

This was brought to my attention earlier today.

Well done. I hope the rest of your education is as rapid. Tax is terrible when we have to pay it. Services are wonderful when we need them.

JasonLVC

Don't forget that when you buy booze or fags, they are also subject to both a Duty and VAT on top.

VAT is a transactional tax and so is charged when a transaction takes place (ie, when you maker a purchase at the till in a shop). The VAT figure is set in stone for most transactions be they goods or services.

Duty is a tax levied upon goods only and are usually used by governments to control and/or protect certain markets. So if we don't want cheap Chinease made bras, we slap a big duty on them which makes them more expensive than UK made bras. If the government want to raise additional income, they can slap a duty, at whatever rate, on fuel, fags or whatever without affecting the VAT side of things.

It is a tax on a tax. But to be honest, when you buy your LCD screen from Dixons, that would have been subject to an import duty of 5% (to discourage the far east from flooding the UK with cheap tat) only you don't see that duty at the point of sale, you'll just pay £399.99 including VAT at the shop. That £399.99 will be made up of the cost of buying from manufacturer, import duty, VAT and the shops profit margin.

Everything we buy more or less will have duty and VAT on it if it comes from outside of the EU, just we'll never see it.

theGrinch

RayWolfe wrote: »

Well done. I hope the rest of your education is as rapid. Tax is terrible when we have to pay it. Services are wonderful when we need them.

agreed, but people think about the MPs gravy train, abandoned IT projects, the spiralling cost of advisors, bankers on large fees for placing gilts, billions for ID cards, wasteful wars et al. and ask themselves can it be done better?

esuhl

So... you buy your car, and pay VAT on top. Then you get the car taxed. Then you pay VAT on the tax. Then you get insurance... and pay VAT on that. You fill up, and pay duty on the petrol. Then you pay VAT on the petrol, and VAT on the duty. And by the time you drive that new car off the forecourt it's depreciated by 50%.

I think I'll cycle to work...

Cromwell405a

You don't actually pay VAT on the insurance you pay Insurance Premium Tax, which is currently 5% for most insurance products.

Pedantic I know, but I am that.

The main reason for tax on tax is, as previously mentioned, to make things easier administratively. If tax on tax ceased to exist tax rates would have to go up, both to cover the lost tax and to cover the admin.

Pennywise

What students are first taught in tax training is that tax isn't fair and tax isn't logical. It's drummed into you that you have to forget common sense and logic and concentrate only on what the law says.

After 25 years as an accountant, I still have to daily remind myself of those basics otherwise I'd probably go mad with all the inconsistencies and illogicalities of our crazy tax system.

When I'm doing tax returns and giving tax planning advice, I concentrate on the law. However, I am also very active in writing to MPs, media etc to try to highlight the absurdities and try to make small steps towards a more logical system. I couldn't live with myself if I didn't try to help change the farcical rules but I do maintain a separate persona when dealing with the current rules that we have no choice but to follow.

What I always advise is that people should write to their MPs to highlight the over-complicated system of so many different taxes, each with their own unique rules and rates that don't follow the others, and to demand simplification in terms of fewer different taxes and more consistency in the rules between them. I'm sure that people would be content paying a higher rate on fewer taxes rather than the multitude of often unfair and illogical stealth taxes we are faced with today.

John_Pierpoint

As government spending goes up and up in this recession, taxes are having a job to keep up.
With the exception of Health and Education the government produces very little, it just swirls the money round as its spending rises towards 50% of GDP. "Tax freedom day in June" if you prefer - so work extra hard for the rest of the year; you are now allowed to work for yourself from here to Christmas.
You have to realise that the government has no money of its own. It can raise money by tax or by printing it (taxation by inflation).

We are now in the "clever" position of having tax extracted from us as quietly as possible by stealth and then given back to us as a "benefit", thus making the majority of the population think that they have something to lose if they call for a reduction in government spending. Sort of being bribed with our own money?

What is PAYE? An income tax!
What is National Insurance? ................... (good answer, well done)

But it sounds so much nicer if you say the standard rate of tax is only 20%.