I was in a pub in Oxford last week when the landlord "explained" how the supermarkets are beating the system and shutting the pubs down.
Apparently it goes like this.
The supermarket negotiates a cut throat deal with a brewery and buys a million or so bottles of their (the brewery's) beer. It (the supermarket) then reclaims the VAT on its purchase.
Next the supermarket sells the beer at less than it has paid for it and so pays less VAT on the subsequent resale and it is there that it makes its profit by offsetting against the VAT element of its other sales.
Now I've tried very hard to make sense of this but given the VAT figure of 20% I find this impossible to equate.
Of course supermarkets also sell - at inflated prices - lots of things like food that are zero rated for VAT.
Maybe that is where it benefits them.
Apparently there is a government think tank looking at this!!!!
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sj