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Speculation for a short term VAT reduction

I see that big brains are applying themselves as to how to stimulate the UK economy, as we begin an upswing in the UK’s retail spending as lockdown is incrementally being lifted. :+1:
One idea, being bandied about is a short term VAT reduction from our present 20% to 17% or even 15%. :clap: :clap:
For many who have lost their jobs or been on the 80% Furlough Scheme or heaven forbid - worse, retail spending might be just a distant & happy memory. Savings will have been used, cards maxed out and new overdrafts or loans sought, so the very idea of retail therapy will be laughable. And for all that have suffered a significant or even catastrophic drop in your incomes, you have my heartfelt sympathies!! :cry: :cry:
But the rest, who are not constrained by recent economic events, a short term drop VAT drop might be a cheaper opportunity of moving IN BOND RESERVES into the DUTY PAID column!??!
There is no guarantee that the Chancellor will take this opportunity to give a short term fillip to the UK economy, and if he does - what the rate reduction will be. And if he does, he may chose to exclude VAT on wine & spirits.
I only bring up this topic as one that might be pored over and discussed. It may come to nothing, there again it may - and no harm in having a plan. :wink: :+1: :dragon:

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I saw that story this morning and immediately thought the same thing. Suggestion was that it would be for a fixed term, so we’d all know the deadline…

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There’s something slightly uncomfortable about reading this thread after reading comments about some companies possibly misusing the furlough scheme. Of course in general we all like to pay as little tax as we can. But at the same time the idea of taking advantage of a government scheme to boost the economy, by using it to reduce our personal tax liabilities doesn’t sit quite right.
I’m working on the assumption that EP purchasers have allowed for the VAT, and can afford it, even if it is painful. If there is a VAT reduction it is surely not intended to benefit EP wine buyers, but to boost general economic activity. I realise this probably has a rather moralistic tone, but that’s just how it strikes me.

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I can see both sides, and I think it’s a fair point.

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Well, I don’t know; let’s say it’s something that you’ve just taken delivery of and weren’t planning to touch for 10 years; perhaps the Government would prefer having less tax now than more in 10 years?

In general I agree that there’s a deplorable culture where tax-avoidance is thought of as essentially virtuous (it’s always happened aggressively but I think the very anti-tax rhetoric in the mainstream is a relatively modern development that seems to be accelerating along with the financialization of the world). The result is that people who can play off jurisdictions against each other do, and even Governments which wouldn’t want to resort to collecting increasing amounts of tax through regressive ones like VAT…

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Well yes, that’s another way of looking at it - a discount for early settlement. Perhaps then gaining some tax benefit and quickly spending the money saved on something else would be a good compromise!

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" big brains are applying themselves" -
:slight_smile:

Personally, I worry the self-employed will be fiscally savaged. An easy target.

Cant see VAT reduction on Alcohol (except maybe a gesture) - I would expect standard tax on Alcohol to increase in order to bring in some revenue. But what do I know.

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Let’s hope Dominic Cummings listens to them for a change!

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Jeez :open_mouth: :open_mouth:

I, for example laud JK Rowlings attitude to taxation, :clap: :clap: and despise that of SIR Philip Green. :open_mouth: :open_mouth: :anger: :anger:
Do I like tax exiles, well no - but if you are a sporting superstar and your high income years may be few, I can appreciate why one might wish to hang onto income for a 40-50 year retirement.
I, like many have an ISA, that is a financial product that insulates one from future taxation.
It is perfectly legal, and it is a tax avoidance device,
It is not tax evasion which is illegal, but many with accountants who have an imaginative instinct of where the line that must not be crossed, resides. And sometimes HMRC will revisit schemes and reclaim funds (for us all) that should not have been given approval.

We might wish to avail ourselves of a VAT discount, where the UK economy receives taxation, a few, some or even many years before it might have been paid. We, the citizens, see the collective coffers bulge with funds much earlier than might have been expected.
That cash, might be used on all sorts of expenditure, that in other circumstances might not have been able to be made.
In my view, a potential WIN for the UK economy, and a WINdfall for EP purchasers.
And handing over cash, 5 or 10 years before one needed to, in exchange for a relatively small discount - might, in some circles be seen as altruistic and patriotic!! :wink: :wink: :+1: :dragon:

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Well yes, that’s very true as well!

Like I said, I can see both sides here :+1:

To be honest, I’ll probably just settle up my en primeur duty/VAT bills whenever I get a spare month, whatever the going rate happens to be…!

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As @Herbster says, there is value to both sides and it is laudable that people may not take advantage of a (theoretical and currently non-existent) VAT reduction, probably combined with a simultaneous rise in duty to offset it, if politicians and economists are being clever :wink:

However, I don’t see any sympathy from on-High concerning the risk many of us take with our pensions, the earnings that get taxed prior to being put aside for pension schemes (and tax relieved, I acknowledge), but which can then be taxed again on retrieval, if income limits are exceeded and taxed again if buying wine with VAT on it.

I for one am happy to pay my tax, but if there’s a legitimate and short-lived VAT reduction, I’ll certainly pay to move at least some of my EP wines to a duty paid status.

(Assuming I retain my job and subject to the effects of a current 20% reduction in salary!)

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The other point worth considering is that the total tax burden will undoubtedly increase on everyone before too much longer. Given that, I don’t think it would be unreasonable to take advantage of a possible slight reduction in VAT, which for me would save a modest sum that would end up spent in the economy anyway.

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It is not evasion or even avoidance to pay less VAT if the government decrease the rate of VAT. It is just an economic decision that everyone will have to make for themselves

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I am gonna provide you some (moral… if not tax :sweat_smile: ) relief, if you will - apologies if this is trivial financial math.

Let’s assume that people keep their wines in bond for an average of 5Y

1 £ today is worth more than 1£ in 5 years - that’s the discounting effect. and it does not even account for the opportunity effect of having money in hand.

Assuming a 1% annualized discount rate for the 5Y horizon, 1 /(1+1%)^5 = 0.95 roughly.

so to the government, receiving £0.95 today or £1 in 5Y has roughly the same “present value” - it is roughly economically equivalent.

if by knocking down the VAT by 2%, he gets you/people to pay today £0.98 today rather than waiting 5Y to fork the £1 , they win.

Yay

the “real equation” is about opportunity cost of cash.
duty changes aside, are you better off paying upfront for less “nominal” tax, or put that money to work until the 5y horizon… that’s anyone’s choice

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Even if you are getting wine out of bond at a lower VAT rate, you are still paying duty and VAT, and importantly you are paying it NOW, when the government is particularly short of money. I personally would have no moral qualms about it.

Edit: Ah, I see now @ruifilipe made roughly the same point 10hrs ago, but with more mathematics.

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And he’s convinced me :wink:

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Interesting point and I had wondered whether we might see a VAT cut. Looking back though, the then Conservative opposition was hugely critical of the VAT cut made by the Labour govt following the 2008 crash. It’s a very different party these days I know, but it would still be quite a political u-turn for them to adopt this measure now. But we have had a few u-turns lately so who knows…?

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Clapping for the NHS had been quite a political u-turn for them, so won’t put anything past them (in the name of political expediency).

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The salient feature as you correctly point out is the NOW

On this sole issue of VAT for IB wines - which I hope does not go into the governement consideration :laughing: given how small a blip it is in the overall picture -, the government would just be pre-empting revenues that would have benefited a future government.

You know what? I buy EP but only maybe a thousand pounds a year; not tens of thousands. Any money I might save, or lose, due to tax changes and/or inflation is not realistically going to be hugely significant. In my sort of price range duty is around 10% of the price and, currently, VAT is 20%. So I very roughly pay around 30% tax on my EP purchases (I know VAT is applied to the duty and is therefore a tax on a tax but this is very rough). Now lets suppose that that changes, either way, by 10% (either duty, VAT or a combination of the two) then I will profit or lose by just 3%.

I think this puts things in a little perspective. For my level of EP spending I’m neither going to be losing sleep or throwing a celebratory party over what is maybe the price of one or two bottles. So I will continue doing what I’ve always done and pay the tax as soon as the wine comes into the country. If I’m going to gamble/speculate I’ll do it with rather more than this! :wink:

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