Should you always pay VAT?
VAT is the thorn in the side of many businesses. It adds to the cost of whatever you sell, which is especially difficult for those businesses supplying the public. It also adds an administration headache which most of us could do without.
It is no surprise then that many businesses love to try and outwit the tax man by doing jobs for cash. Not only does this avoid the VAT but also helps with income tax too as profits are artificially lowered. Everyone's a winner eh? Not so.
By the way, it is not my intention in this article to preach about any moral values. Instead I want to offer my opinion based on observations of people who have lived out their business lives like this.
Everyone's at it
Few people we come across in business life would offer to steal something for us. Although there are doubtless exceptions, I am sure most of us have never had an offer from a business supplier to provide us with forged or stolen goods. So why is it then that many business owners are quite happy to completely openly offer to do a job for cash, thus avoiding the VAT man? And why is it that in my time as a web designer I have had many customers offer me cash in return for a lower price?
To be honest, I do not know the answer to this one. It can only be that most people do not consider it a crime to avoid tax. Whatever the truth behind this, it is something which is extremely common.
The start of the slippery slope
Don't worry, I am not about to break my promise and start preaching. But whatever your opinions are on the moral justification of dodging tax, my observations are that even when looked at from a purely selfish standpoint, it is not the way to go.
I have a friend who is at the top of his trade, or rather he should be. He is not only a specialist in his line of work, he is positively in the top echelons of the people who can do this type of work. Couple this with the fact that he is a very talented salesman, you have here all the makings of a very successful business man. However, this is not the case.
He loves the idea of a bargain. He can never resist doing work for cash and thus avoiding the VAT man and the tax man in one fell swoop. As a result, he has to find sub-contractors who will also work for cash as he has a lot of "grey" money to get rid of. This suits him well of course, because he feels he is getting the same savings a second time around.
However, the people he has to deal with are unreliable to say the least. Not only that, he has no legal grounds for retribution when things go wrong because the transaction never officially existed. The end result is that he constantly lets down his customers because his suppliers constantly let him down. This ruins so many contracts that despite his talent and his many years of business experience, he is still struggling.
The truth is that whatever your standpoint on this subject, if you follow this path, you end up dealing with some very dodgy people who will only too quickly drag you down a very slippery slope to business ruin.
I truly hope that my friend one day learns his lesson. If he does, he could end up on the cover of a lifestyle magazine instead of risking appearing on Rogue Traders on the TV!
Wed 6 July 2011 19:00:19