With a few exceptions (Builders etc.) when one registered business supplies another registered business the former pays the vat and the latter reclaims it.  It is only when supplies are made to non vatable entities and or people (the retail sector) that HMRC actually gain a net benefit.

All supplies made between registered businesses (with a few exceptions) should be zero rated,

Why is this idea important?

In 2009 there were over 19,000 company liquidations.  Virtually all of these companies would have been wound up owing HMRC £000 in VAT.  By allowing businesses to zero rate supplies to other registered businesses those who only supply to other similar businesses (the vast majority) would never build up a vat liability.  And there would not be a huge loss to the revenue each time one went out of business.  HMRC could then concentrate their collection and enforcement activities at the sharp end – principally the retail sector.  It would also relieve many businesses of the hassle of regular VAT inspections.

Each business registered with HMRC as one which wholly or mostly made only zero rated, or exempt supplies, would only need to file one annual vat return for statistical purposes.

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