Morality Question
Discussion
Somebody I know has a business which used to turn over maybe £150k a year. It's entirely B2C retail.
She's dropping a product range, and expects turnover to fall below the VAT threshold as a result. This raised an interesting moral question. Given the customers currently pay a VAT inclusive price, and apparently never get VAT receipts, if she didn't reduce her prices after deregistering, most of her customers wouldn't even know the difference, and her margins would go up.
A good idea: Yay, or nay?
She's dropping a product range, and expects turnover to fall below the VAT threshold as a result. This raised an interesting moral question. Given the customers currently pay a VAT inclusive price, and apparently never get VAT receipts, if she didn't reduce her prices after deregistering, most of her customers wouldn't even know the difference, and her margins would go up.
A good idea: Yay, or nay?
akirk said:
Think of it in both directions...
In the opposite direction, would she have kept the price the same, but paid the VAT out of the price - or increased it?
I suspect that the market will pay what it will, so effectively had she moved from not VAT registered to VAT registered she would have had to absorb the VAT... this would be to just put her back to that original place - not sure that is a moral question...
But this suggests she 'should' reduce the price once VAT isn't applicable, to "put her back to that original place."In the opposite direction, would she have kept the price the same, but paid the VAT out of the price - or increased it?
I suspect that the market will pay what it will, so effectively had she moved from not VAT registered to VAT registered she would have had to absorb the VAT... this would be to just put her back to that original place - not sure that is a moral question...
akirk said:
no - original price = £1.20 / cost = 60p = profit of 60p
becomes vatable - still sells at £1.20 - now 20p to HMRC = profit of 40p - i.e. she absorbs the VAT
(alternative would have been to add VAT on top and charge £1.44 -> 24p to HMRC, cost of 60p, retains profit at 60p)
If she is now doing it the other way:
£1.20 is currently giving her 40p profit
no longer vatable - she no longer passes on 20p to HMRC and therefore makes a profit of 60p
the usual reality is that the market drives the price - so when a company becomes vat registered, they absorb the VAT (and it partially balances with the VAT they reclaim) - the price can't go up as the market won't pay the extra... therefore in stopping being vat registered, the same happens - price remains the same, but she retains what would have gone to HMRC.
But this assumes that she didn't put her prices up when becoming VAT registered. becomes vatable - still sells at £1.20 - now 20p to HMRC = profit of 40p - i.e. she absorbs the VAT
(alternative would have been to add VAT on top and charge £1.44 -> 24p to HMRC, cost of 60p, retains profit at 60p)
If she is now doing it the other way:
£1.20 is currently giving her 40p profit
no longer vatable - she no longer passes on 20p to HMRC and therefore makes a profit of 60p
the usual reality is that the market drives the price - so when a company becomes vat registered, they absorb the VAT (and it partially balances with the VAT they reclaim) - the price can't go up as the market won't pay the extra... therefore in stopping being vat registered, the same happens - price remains the same, but she retains what would have gone to HMRC.
Anyway, that's not really the question. I know how VAT works, as does she. Nobody here sees a moral issue with her effectively earning 20% more from her customers without telling them, so that's answered my initial enquiry.
It's not a question she asked me, BTW, just one than occurred to me.
If you buy a new car, the price includes VAT, and you can't claim it back.
If the government said that, in order to stimulate the new car market, it was abolishing VAT on new cars, would you expect the list price to fall? Of course you would. If the manufacturer chose to keep the same list price, woupd you question their morals? Of course you would.
If the government said that, in order to stimulate the new car market, it was abolishing VAT on new cars, would you expect the list price to fall? Of course you would. If the manufacturer chose to keep the same list price, woupd you question their morals? Of course you would.
Dixy said:
Doofus said:
I know
I don't think you doAnyway, I have got the answer to my hypothetical question, and I can't be arsed to argue the definition of the word 'morality' any longer, so feel free to talk amongst yourselves.
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