The Office of Tax Simplification (OTS) has published an interim report on its review of the UK’s VAT system, in which it presents the areas of complexity identified during the first phase of the review. It has also opened a call for evidence to help develop its ideas on how to create a sustainable VAT system for the future that imposes minimal burdens on business. In particular, it is looking for:
- evidence of how these areas cause difficulties and complexities (quantified if possible)
- ideas for how to improve matters
- any areas for simplification that have been missed
Submissions and comments, should be sent in via email before 30 June 2017.
The review mentions certain specific sectors in which it is considering the scope for simplification: this includes a section on charities. There is no general relief for charities as the normal VAT rules apply to business supplies made by charities. However, since VAT was introduced into the UK, the legislation has provided a range of special reliefs which do cover many supplies to charities. This includes zero-rating for some supplies to charities and there are some exemptions, zero-rating and other concessions for business supplies made by charities. In addition to our discussions with charities, the OTS has received representations from diverse industries saying that they find the rules regarding supplies to and by charities to be overly complex to administer.
Key areas for CTG
- Identifying the implications of a high registration threshold. The UK VAT registration threshold, at £83,000, is much higher than most other countries’ (generally closer to £20,000 across all countries with a VAT system or equivalent). This influences and distorts business behaviour. Would it be less distortive if the UK’s threshold were lowered to bring in more businesses? If so, how would those small businesses cope? What would be the impact of raising the limit to remove more businesses from VAT? Or could the ‘cliff edge’ of registration be managed better?
- Multiple rates: Causes of complexity. The UK currently has in effect four different VAT rates: the standard 20% rate, the 5% reduced rate, a zero-rating, and exempt goods and services. The definitions—and practical application of definitions—of items within each rate cause a lot of complexity. How might this be simplified?
- Partial exemption, option to tax and capital goods scheme. These have been raised as some of the most complicated areas of VAT. Many more businesses now seem to be affected. Can they be simplified? Or are there ways to amend them to reduce their range and impact?
- Special Accounting Schemes. There are several schemes, including the flat rate scheme, retail schemes, tour operators margin scheme and annual accounting scheme, generally designed to simplify the VAT regime. Business practices and technology have changed significantly since they were designed, so are these schemes working appropriately today? Do they need improving – or are any in fact no longer needed?
- VAT and Making Tax Digital (MTD). HMRC’s MTD plans encompass VAT so that brings opportunities and risks. Which areas of the VAT regime need to be simplified to better fit into MTD? And what simplification could MTD bring to the VAT regime – how would the special accounting schemes be affected?