I fully understand the competitive advantage of a tradesman who is not VAT registered has over one who is registered, and therefore the urge some tradesmen might have to keep their (official) turnover below the VAT threshold.
However once you reach that threshold and become VAT registered what if any advantage is there to a tradesman of "discount for cash"?
Immediate cash for paying suppliers and employees ?
One less trip to a bank ?
A time saving for chasing up that "I'll transfer it as soon as I put the phone down ...." customer ?
Having worked in a small business, I am weary of the "cash payments = up to no good" trope that it's suited the media to keep frothed up. Especially when the Apples, Googles, Starbucks and Amazons of this world manage to swerve far more tax without taking payments in cash than Bloggs builders might do with the odd <cough, cough> "cash job". (Which I disapprove of anyway).
My experience (which is not recent) as a tradesman was that customers always initiated the conversation by asking for a 'cash discount'. They wanted me to take the cash, not declare the amount to the revenue and not charge them the VAT. It's a mug's game as a tradesman because the benefit is entirely the customer's and the risk (if you are caught) is entirely the tradesman's.
TW
Yes ok fair points
No, I was just asking to try and understand what other reasons there might be beyond "up to no good", some of which you have highlighted.
I'm with you all the way on the "legal" means some of these giants have to minimize their tax contributions.
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I thought it was do do with the amount a bank charges for cashing a cheque or for using a card which used to be 2%. It also used to be easier to handle cash, and in some cases it still is. The student union minium card transaction which is IIRC £5 .
It's also not just a discount thing but an offer of coinvience is assumed. People used to offer discounts for cash.
Same as it was in the first place, as long as the discount they offer is less than the vat that would be due.
It's a perversity of the law that directors are obliged to maximise shareholder value.
In any case, no one (individual or corporation) is obliged to act in such a way as to increase their tax liability. Neither legally nor morally.
Indeed, it is the law that needs a shake up, not the corporate giants accountants/lawyers.
The way I answer the "discount for cash" customers in the shop is: It's more effort and security risk taking cash as it all has to go into the bank to allocate stock etc. In my head I'm thinking "you have cash because you took it and didn't declare it for income tax therefore you've already saved 20 or 40% in tax so I'll be buggered if you're then going to try and get additional money off for ME defrauding the Tax/VAT inspector. If I were to choose to not declare it then the "perk" should go into my pocket not a "double dip" discount for one person.
But our cash intake is virtually non-existent and people use debit cards in preference to having a wallet/purse full of cash these days.
There can be a small legitimate incentive since they trader can avoid card processing fees/merchant fees. Beyond that, not much unless you get into "off the books" jobs dealing in services / labour only.
I have had a discussion with the occasional customer who would rather not pay VAT on something. Many seem to miss the point that I had to pay the VAT when I bought it, so if I don't charge it when I sell it, I will actually lose a percentage just for the privileged of selling them something!
Perversely, trying to charge more tends to lower receipts from global businesses, since they are free to organise in whatever tax jurisdiction works out cheapest for them. The key is often to make sure you are the cheapest place to do business, so that they funnel as much money as possible though your tax system rather than someone else's.
(needless to say that concept really upsets the lefties!)
Well if that wasn't the law, how many shysters would set up companies that didn't maximise shareholder value, but instead line their own pockets ?
No argument from me.
Cash is an ideal way to avoid paying income tax etc - and perhaps to allow him to employ someone off the books. Far more to it than just VAT.
It's not so simple when they don't move production (especially largely service industries) but are allowed to arbitrarily allocate profit to whichever locality suits them best. Like Amazon and Facebook etc. We may need to bribe Nissan to make cars here, but we don't need to induce Amazon and Facebook to make money out of activiities carried out in the UK.
A better advantage is charge VAT even when he is not registered and make another 20%.
How many people ask for a full VAT invoice and check if the VAT number is current and registered to him/her ?.
But you paid VAT on the price you paid, ie trade price, but you made the customer pay the 'retail' price (which can be up to 100% more) so the VAT on the retail is more than the VAT you paid.
It would make more sense if you had zero mark up on parts, so the bill would be completely transparent. Your profit would be on the labour content.
Not in my industry alas - 7% is a fairly average mark up on IT hardware for us. In many cases the hardware sale is a means to an end - it will usually come with/require more profitable consultancy, and gives the customer a single point of contact (and hence ownership of problems) for all their kit.
To be fair, the SME customers are not usually the problem ones - it tends to be the individual end users who ask "Oh, can you get me XYZ any cheaper?" Then not content with the saving they get not buying something for silly money in PC World, they also want you to engage in VAT fraud for them!
I itemise parts and labour separately anyway.
No we want to induce them to let us tax them on money they make all over europe not just here!
Those transactions don?t have to go on the books and so don?t show up on your tax return and no VAT needs to be paid. But the VAT on the materials can't be claimed either. No big deal if its mostly labour or the customer supplies the materials.
The difference with the majors is that they can use bogus transfer payments to their alleged parent company in a tax free haven like the Bahamas etc.
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