CVC Blog: Office of Tax Simplification – Proposals for simplifying VAT

 Those readers familiar with VAT will be aware that the operation of the tax is seldom straightforward.  It is therefore no surprise that the first Office of Tax Simplification (OTS) review of VAT has found many areas where the system could be simplified or improved, even without considering Brexit and cross-border trade.

The report of the review can be read in full here.  However, the main points to come out are:

  • A recommendation that the UK’s high VAT threshold (£85,000 at present) is reviewed as it is seen as a significant disincentive to business and potentially economic growth. Options include a much lower or much higher threshold or introducing smoothing mechanisms.
  • HMRC should consider improving clarity of guidance and responsiveness to requests for rulings.
  • There should be a review of the reduced zero-rate and exemption schedules.
  • Partial exemption de minimis rules should be reviewed for ways to simplify calculations.

The report is an interesting read and brings out points recognised by many as causing issues in the operation of the tax alongside sensible suggestions as to solutions, not that any unregistered small businesses trading below the VAT registration threshold will be keen to see the registration threshold reduced in terms of the additional regulatory burdens this would impose upon them!  It will be interesting to see if any of these recommendations are addressed in the near future, particularly with the Autumn Budget approaching on 22 November 2017.