Trading outside the EU to profit from the VAT system

Oh my goodness, I thought you were dead. What an unpleasant surprise.

Plus ca change.

CT? We must be thinking not about Tom, then, but about Tom Ltd, but that's a minor point. OK, agreed.

OK. But note that sending this cheque does not reduce Tom's profit from 70k to 56k. Rather, his "inc-VAT trading profit", to coin a somewhat meaningless term, was £117500 minus £23500, or 94k. His VAT cheque reduces this to a real trading profit of 80k. Finally the overhead expenses of 10k further reduces this to a taxable profit of 70k.

VAT inflows and outflows always add up to zero. His sales were 100k plus output VAT, his purchases were 20k plus input VAT, and if output exceeds input, the surplus goes to HM as a cheque. If input exceeds ouptut, the deficit is refunded by HM.

You being Dick? No, I won't comment. No Sir, I will not. Not in a month of Su Mhn bw wh bwha ha HAAAH Ha Ha ha, erm. Sorry.

Well, they usually would, but I appreciate you've set the profit margin to zero simply to avoid introducing unnecessary complication into the arithmetic. Bless you, possum.

Yes.

No.

As before, VAT inflows and outflows cancel out. In exactly the same way as, in scenario 1, the cheque Tom sends HM does not reduce his profit, the cheque he receives from HM in scenario 2 does not increase it. All it does is refund to him the deficit he has already suffered as a result of input VAT exceeding output VAT.

It might help you to look at things in terms of (meaningless) inc-VAT profit. His inc-VAT sales are £117500+£100k = £217500, his inc-VAT purchases are £23500+£117500 = £141k, so his inc-VAT trading profit (before deduction of the £10k wages expense) is £76500. Add the HM cheque of £3500 to bring this up to £80k, just as before.

qed

So in scenario 1, Tom ltd has 100K sales, the stock costs are

"Unconnected" to this Tom also has to send the VATman a 14K cheque.

In scenario 2. Tom ltd has 200K sales, the stock costs are 120K which again leaves 80K (before the 10K deduction) profit.

VATman sends Tom a cheque for 3.5K

How does Tom Ltd not benefit?

He has still got the 80K profit and now (after participation) the

Or might it work another way?

Scenario 1

Take off the 10K deduction leaving 70K LCT

Whatever the real calculation is we'll tax this @ 23% so

Scenario 2

Exactly the same but now 53,900 profit + 3.5K rebate = new profit 57,400

Best Regards

Graeme Nicholson

He does not benefit because the £3.5k in-cheque in scenario 2 is equally as "unconnected" with his profit as the £14k out-cheque is unconnected in scenario 1.

No, you fool. Why can't you see this?

If in scenario 1 he did not have to send £14k to HM, his profit would have been £94k instead of £80k.

If in scenario 2 he did not receive the £3.5k from HM, his profit would have been £76.5k instead of £80k.

In both cases £80k is the bottom line after all[*] is said and done.

Consider scenario 3. This takes in *just* the Tom Dick Harry business, so that scenario 2 is no more nor less than doing both scenario 1 and scenario 3 together, either concurrently or consecutively, it doesn't matter. There is no magic in combining them. Their accounts can simply be added together.

Scenario 3:

Tom spends £117.5k buying merchandise from Dick. Then he collects £100k from selling it to Harry. Then he gets a cheque for £17.5 from the VAT man, being the difference between £0 output tax and £17.5k input tax. Result: Neutral. Neutral both in terms of the £100k goods money and in terms of the £17.5k input VAT spent and later refunded.

The £3.5k in-cheque of SC2 is not an "additional benefit". It's just the £17.5k in-cheque of SC3 minus the £14k out-cheque of SC1.