UK How Does HMRC Make Money on Vat?


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Sounds like a stupid question but hear me out.

As vat on sales is paid by business and on purchases reclaimed this all nets off for HMRC (assuming everyone claims correctly) so technically they only make money on the Vat that can't be reclaimed, I.e. charged to non vat registered businesses?

Am I right or going mental?
 
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Let's assume TidyCorp is a retailer that sells widgets to the public. It buys widgets at 100 GBP from the distributor, and sells them for 125 GBP to its customers. (Because they're absolutely smashing widgets!) Assume VAT is 20%. TidyCorp owes HMRC 25 GBP for each widget it sells, and reclaims 20 GBP for each widget it purchases. So HMRC keeps 5 GBP per widget.
 
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Let's assume TidyCorp is a retailer that sells widgets to the public. It buys widgets at 100 GBP from the distributor, and sells them for 125 GBP to its customers. (Because they're absolutely smashing widgets!) Assume VAT is 20%. TidyCorp owes HMRC 25 GBP for each widget it sells, and reclaims 20 GBP for each widget it purchases. So HMRC keeps 5 GBP per widget.
Thanks for your reply, I do get that but let's assume Tidycorp has sold the widgets to Messycorp for 125GBP they will reclaim the 25 GBP Vat so it cancels out the VAT on sales paid by Tidycorp....
In this case the only time HMRC makes any money is when the purchases aren't reclaimed, I.e. by non VAT registered businesses.
 
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