Beleaguered UK businesses groaned this morning, when the Chancellor of the Exchequer Alistair, Darling announced that, from 1st January 2009, VAT is to be charged on Value Added Tax.
Mr Darling told ministers on Tuesday, that the government would be cutting VAT from 17.5% to 15% for 13 months to boost spending, but this latest development is likely to result in many fledgling businesses being forced 'up Shit Creek without a paddle'.
Many people don't understand VAT. For those who don't, here is a brief summary:
VAT is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on upstream taxes) *
There is more, but it's very boring, and like wading through quicksand.
One owner of a small business, John Tool, who runs a firm that manufactures a funny device for unblocking toilets, said:
"This has got to be absolutely the worst news I've had since John Sergeant left Strictly Come Dancing. It'll ruin me. I'm gutted."
Another, Barry Sleight, of Barry's Magic Wands, told us:
"Tax on tax! It's ridiculous! Crumbs, we can barely afford three holdiays a year anymore. If it weren't for my dodgy drug-dealing on the side, we'd be fucked!"
VAT is not to be confused with Vat Tax, which is a tax on vats used in the wine-making business.
* Source: Wikipedia (laughs)