UK get heavy on tax dodgers

Watch out wealthy individuals and business people in the UK.

UK Treasury Chief Secretary Danny Alexander says their Government is putting GBP900m extra into combatting tax evasion. The goal is to collect an additional GBP7 billion by 2015.

Using new technology and a specialist cyber crimes unit tax investigators will target offshore tax evasion and alcohol and tobacco smuggling.

The tax department in the UK monitor the “tax gap” between what they estimate are the taxes owed and the taxes they actually collect. They reckon the gap is about GBP42 billion.

Of this, apparently the largest shortfall is in VAT where they estimate GBP15.2 billion of VAT owing is actually not collected.

That’s a staggering amount of money, although to put it in perspective, the budget deficit in the UK is GBP165 billion.

One of the measures aimed at reducing VAT evasion is the recently announced “reverse charge” for transactions involving mobile phones and other computer technology. It will mean companies in the UK buying these items will have to self assess the VAT rather than the vendor doing so. It prevents what is known as “carousel fraud” which apparently has been on the rise in the EU.

New Zealand’s IRD recently toyed with introducing a reverse charge for GST on land transactions. It would have meant a GST registered purchaser of land would account for the GST on the sale at the same time they claimed the GST credit for their purchase. The vendor would be out of the picture.

That proposal’s been dropped and instead, from 1 April next year, transactions involving land between GST registered entities will be “zero rated” for GST.

More on that later.



20% VAT rate!

Wow! The UK Government is intending to increase their VAT standard rate from 17.5% to 20% from 4 January 2011. That’s just a year after the rate rose from 15% back to 17.5%.

This was announced in the UK Government’s Budget yesterday.


There has also been an increase in the top capital gains tax rate for the UK.

These measures are coupled with significant cuts in Government spending. However alcohol and tobacco taxes have not been increased.

Also, items which are currently zero rated for VAT (i.e. the VAT rate is 0%) such as food, books and children’s clothing, will remain zero rated.

VAT/GST is finding favour with Governments looking to increase tax revenue while encouraging savings and maintaining some level of economic stimulus. The rationale is; the bigger spenders pay more tax.

Drastic measures indeed.



How do you make a caravan 25cm wider?

Makers of caravans in the UK will no doubt be pondering this very question following the UK Customs and Excise directive on 20 April 2010 that to be eligible for VAT zero rating a caravan must now be at least 2.55 metres wide. This is an increase from the previous minimum width of 2.3 metres.

Too bad if you make caravans 2.4 metres wide. You have to charge more VAT when you sell them.

I can readily accept the notion of NZ MAF inspectors travelling around the country with rulers to ensure fishermen are not keeping snapper less than 27 cm long but I’m struggling a bit with a picture of VAT inspectors in the UK getting rulers out to determine whether something should be subject to tax.

You wouldn’t want to get it wrong just for the sake of 1 mm or so would you?

Perhaps the obesity epidemic in the UK has reached such levels their Government has identified a social imperative in encouraging the manufacture of wider caravans.