Earlier this month the Office for Tax Simplification (OTS) published a report, following feedback from trade associations, businesses, professional bodies and individuals, which makes recommendations for the simplification of Value Added Tax (VAT).
Many of the proposals outlined in the report stem from the belief that what was supposed to be a simple tax has now become much too complicated and is not aligned with how society currently operates.
Here we summarise some of the key recommendations that can found in the OTS’s report:
- The VAT registration threshold – The UK currently has the largest VAT threshold in the world. Any business whose turnover exceeds £85,000 must charge VAT on sales. The OTS argue that this was a means of simplification whereby smaller businesses would not be not caught up in the regime, but also acknowledged that it is a significant cost to the Government at £2bn a year. The OTS, after setting out various strategies for increasing or reducing the threshold, recommends that the Government examine the current threshold and consider the implementation of some form of ‘smoothing mechanism’ such as:
- smoothing the cash impact of becoming registered
- smoothing the administrative impact
- smoothing both cash and administration
- a time-limited reduction in the VAT Flat Rate Scheme rate for newly-registered businesses and a financial taper
Any such mechanism could offer businesses a way to pass more easily across the threshold.
- Administration and guidance from HMRC – Taking feedback from respondents on board, the OTS recommend that HMRC take steps to improve the clarity and comprehensiveness of its guidance on VAT and the associated administrative processes.
- VAT rates – As it stands, where goods and services are not subject to the standard VAT rate, a reduced rate, zero rate, or exemption may apply. The OTS recommend a comprehensive review of the rates structure to eliminate unnecessary complexities and ensure that the rates system is flexible to meet Government objectives, as well as able to keep up with developments in the market and in technology.
Tax Partner, Phil Blackburn, had this to say about the recommendations: “In light of these recommendations, made by the OTS, the Government should grab the opportunity to begin to address the many anomalies of VAT and notably improve the efficiency, simplicity and fairness of the system in the long-term”.
“VAT is extremely complex and complicated to administer. Often, businesses can find it difficult to get their heads around the abundance of associated rules and regulations and indeed how to apply these correctly without the need for professional assistance.”
“For small businesses, upon whom the burden of VAT tends to fall disproportionately, many of these proposals will represent the prospect of the simplification of many irksome administrative technicalities and at the very least, it may generate some practical debate around the registration threshold.”
Here at George Hay we understand that VAT is complex and that the multifarious rules and regulations can be extremely difficult to navigate successfully. However, as is the case with any tax there is always the opportunity for planning to ensure that your VAT liability is minimised. Careful consideration should also be given to ensuring that you are fully compliant which we understand, when it comes to VAT, can seem impossible.
We can help you to recognise opportunities to plan and minimise your liabilities, we can discuss the various schemes that exist and whether they might benefit your business and we can help you to identify any potentially costly mistakes, before it’s too late. If you’d like to talk to one of our team, call 01767 315010 or fill in one of our online enquiry forms here.