Vat Notches, Voluntary Registration, and Bunching: Theory and UK Evidence
78 Pages Posted: 7 Oct 2019
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VAT Notches, Voluntary Registration, and Bunching: Theory and UK Evidence
Date Written: September 2019
Abstract
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.
Keywords: bunching, UK, Value-Added Tax (VAT), Voluntary registration
JEL Classification: H21, H25, H32
Suggested Citation: Suggested Citation