The OTS has made 23 separate recommendations (8 core and 15 administrative) in its final report on VAT simplification. The main theme is around a thorough examination of the registration threshold, including potential smoothing mechanisms to address the distorting effects of the UK’s relatively high threshold. The core recommendations call for:
government to examine the level and design of the VAT registration threshold, including potential benefits of a smoothing mechanism;
HMRC to improve the clarity of its guidance and responsiveness to requests for rulings in areas of uncertainty;
HMRC to reducing uncertainty and administrative costs for business around potential penalties when inaccuracies are voluntarily disclosed;
HM Treasury and HMRC to review the reduced rate, zero rate and exemption schedules, working with the OTS;
government to consider inflationary increase in partial exemption de minimis limits and explore ways of removing the need for businesses to carry out partial exemption calculations;
HMRC to consider ways to simplify partial exemption calculations and improve the special method application process;
government to consider whether capital goods scheme categories other than for land and property are needed, and review the land and property threshold; and
HMRC to review record keeping requirements and audit trail for options to tax, looking at whether this might be handled online.
At £85,000, the UK has one of the highest registration threshold levels in the world. While the OTS sees this as a form of simplification, enabling many small businesses to stay out of the VAT system, it is a relief which comes at a cost of around £2bn per annum and evidence suggests that many growing businesses are discouraged from expanding beyond this point.
Alan McLintock, chair of CIOT’s indirect taxes sub-committee, gave the report a warm welcome, but noted that changes to the VAT threshold will face a trade-off, saying: ‘While the current threshold can act as a barrier to the growth and activity of a business, many small businesses have spent their lifetimes not dealing with VAT and having correspondingly less regular contact with HMRC.’
The OTS has made 23 separate recommendations (8 core and 15 administrative) in its final report on VAT simplification. The main theme is around a thorough examination of the registration threshold, including potential smoothing mechanisms to address the distorting effects of the UK’s relatively high threshold. The core recommendations call for:
government to examine the level and design of the VAT registration threshold, including potential benefits of a smoothing mechanism;
HMRC to improve the clarity of its guidance and responsiveness to requests for rulings in areas of uncertainty;
HMRC to reducing uncertainty and administrative costs for business around potential penalties when inaccuracies are voluntarily disclosed;
HM Treasury and HMRC to review the reduced rate, zero rate and exemption schedules, working with the OTS;
government to consider inflationary increase in partial exemption de minimis limits and explore ways of removing the need for businesses to carry out partial exemption calculations;
HMRC to consider ways to simplify partial exemption calculations and improve the special method application process;
government to consider whether capital goods scheme categories other than for land and property are needed, and review the land and property threshold; and
HMRC to review record keeping requirements and audit trail for options to tax, looking at whether this might be handled online.
At £85,000, the UK has one of the highest registration threshold levels in the world. While the OTS sees this as a form of simplification, enabling many small businesses to stay out of the VAT system, it is a relief which comes at a cost of around £2bn per annum and evidence suggests that many growing businesses are discouraged from expanding beyond this point.
Alan McLintock, chair of CIOT’s indirect taxes sub-committee, gave the report a warm welcome, but noted that changes to the VAT threshold will face a trade-off, saying: ‘While the current threshold can act as a barrier to the growth and activity of a business, many small businesses have spent their lifetimes not dealing with VAT and having correspondingly less regular contact with HMRC.’
