Call for evidence on simplification of VAT Partial Exemption and the Capital Goods Scheme

HMRC published a call for evidence on simplification of partial exemption and the Capital Goods Scheme in July 2019. This was trailed in the Spring Statement and follows recommendations in the OTS report on VAT simplification published in November 2017.

The consultation closed on 26 September 2019 and you can access CTG’s detailed response via the link below

Call for Evidence on PE and CGS simplification – CTG response 26 September 2019

Call for Evidence

The call for evidence was split into three sections:

  • the process for applying Partial Exemption (PE) Special Methods (PESMs) and the possible ways in which this might be improved to reduce burdens for taxpayers and HMRC alike
  • how the current PE de minimis limit could be changed to aid simplification
  • possible policy solutions to issues caused by the CGS.

Partial Exemption Special Methods

  • Does your business use a PESM? If so, what was your experience in getting the PESM approved?
  • How long did the approval process take?
  • Do you find the administration involved with PESMs challenging?
  • Would allowing businesses to apply PESMs without seeking approval improve the system? Please give reasons for your answer.
  • Would there be issues created by removing the requirement to seek approval of a PESM?
  • Would an increased focus on the use of sectoral frameworks be of benefit, particularly if approvals were removed?
  • Do you have other suggestions to improve or simplify the application of the PE regime?
  • Do you have other suggestions on how the way in which HMRC interacts with partly exempt businesses could be improved?

Increasing the de minimis limit

  • What is your experience of carrying out the de minimis test?
  • What would the advantages and disadvantages of increasing the de minimis threshold be to business
  • Are you aware of the existing simplification, and do you make use of it?

Removal of the de minimis limit

  • What would be the advantages and disadvantages of removing the de minimis test?
  • Do you have other suggestions to improve or simplify the application of the de minimis regime?
  • Do you have any suggestions on how to determine what can be considered as ‘insignificant’ that would be different to the current de minimis tests?

Capital Goods Scheme (CGS) thresholds

  • What is your experience of the CGS?
  • How much time and resource do you allocate to carrying out CGS calculations? Does this have an impact on your business?
  • To what extent does the CGS help to prevent cases of tax avoidance and unfair competition?
  • What would be the advantages and disadvantages of increasing the threshold for land and property for businesses
  • Would there be any other issues involved with increasing the land and property threshold?
  • If the threshold for land and property is increased, do you think we should consider having a different threshold for alterations, extensions, annexes and refurbishments, (i.e. retain the current threshold) or would this increase complexity?
  • Are there other ways in which the CGS can be improved?

CGS categories

  • Do you have experience of computers being included in the CGS?
  • Would removing computers from the CGS be a simplification for business?

CGS intervals

  • What do you think of the current interval length?
  • Would a change in the number of intervals help businesses with their administration of VAT? Why?

Other possible areas to review

  • Do you have other suggestions to improve and simplify the application of the PE and CGS regime? [Suggestions include using MTD or learning from practice in other Member States]
  • Do you have any experience of the operation of PE and the CGS in other countries? How does the UK compare?
  • Do you have any other comments?