There is a problem that sole traders do not pay their taxes. One would be a fool to pay. He’d be putting himself at a competitive disadvantage, raising his costs against his competitors. Because nobody else is paying.

There are two separate issues

  • businesses are normally structured as a hierarchy. Co-op are more fair, better for wealth distribution, healthier for workers, probably more successful, and more like the natural form businesses take in primitive societies.
  • It would be better for society and for the market if there were more small businesses. Markets naturally develop into monopolies, with one or just a few players, because small businesses cannot compete. This leads to price fixing, bad service, etc. Many areas have one big Tesco and nothing else. That’s an obvious example, but this effect is much more pervasive.

Here, a coop is defined as a business where all employees have equal vote on big decisions, not necessarily equal pay or conditions or hours.

All of this can be improved at once.

Create a law, that any business organised as a coop does not pay VAT. This has several effects:

  1. Sole traders no longer have to pay VAT. So honest ones are not (or are much less) punished for their honesty. It resolves the VAT non-payment problem, in the only realistic way it can be solved.

  2. People starting a business can gain a big advantage against the big players, just by structuring it as a co-op. This helps encourage new startups, and makes them better workplaces.

  3. There is a lower tax take, but it is probably not significant. It could be nulled by a small increase in the general VAT rate. The new businesses which start because of this will not increase the VAT income. The societal benefits are not fiscal.