VAT Notches, Voluntary Registration, and Bunching: Theory and UK Evidence

By Li Liu, Ben Lockwood, Miguel Almunia, Eddy H.F. Tam

September 27, 2019

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Li Liu, Ben Lockwood, Miguel Almunia, and Eddy H.F. Tam VAT Notches, Voluntary Registration, and Bunching: Theory and UK Evidence, (USA: International Monetary Fund, 2019) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Using administrative tax records for UK businesses, we document both bunching in annual turnover below the VAT registration threshold and persistent voluntary registration by almost half of the firms below the threshold. We develop a conceptual framework that can simultaneously explain these two apparently conflicting facts. The framework also predicts that higher intermediate input shares, lower product-market competition and a lower share of business to consumer (B2C) sales lead to voluntary registration. The predictions are exactly the opposite for bunching. We test the theory using linked VAT and corporation tax records from 2004-2014, finding empirical support for these predictions.

Subject: Competition, Compliance costs, Corporate income tax, Financial markets, Revenue administration, Taxes, Value-added tax, VAT registration thresholds

Keywords: Account database, Bunching, Competition, Compliance costs, Corporate income tax, H.F. tam, Input cost ratio, Responses to notch, Standard deviation, System in the UK, Turnover net, Unit cost, Value-added tax, Value‐Added Tax (VAT), Value-added tax system, VAT registration thresholds, VAT threshold, Voluntary Registration, WP, Year dummy

Publication Details

Pages:

78
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/205
Stock No:

WPIEA2019205
ISBN:

9781513513812
ISSN:

1018-5941

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