Simplification of the VAT System?

The Office of Tax Simplification (OTS) is working on reviewing the existing VAT legislation and considering areas that require reform, all in the context of a post Brexit VAT Act that is not overridden by EC legislation. The areas that OTS is considering are wide ranging, running from consideration of the VAT registration threshold and if it is too high or too low, through to considering if VAT and its various rates, exemptions, special schemes and various complexities should be simplified.

Views are being sought by the OTS pre 8 March 2017 when it will be reporting back to the chancellor. This is an important opportunity for businesses and charities to have some input into potential changes and views can be sent to OTS@OTS.gsi.gov.uk or Nigel.Mellor@OTS.gsi.gov.uk.

However, as always with VAT simplifications the concern is that the result often seems to be more complexity either immediately after the simplification or at some later date. Take for example the flat rate scheme, intended to be a simple scheme for small businesses to administer and used by many consultancy businesses.

With effect from 1 April 2017 businesses on the flat rate scheme will have to monitor their purchase of goods other than capital items and stock for resale or hire to determine if they can continue to use the flat rate applicable to their trade class or should use the new 16.5% rate for limited cost traders. This will apply if it purchases goods of a value of less than 2% of its turnover or greater than 2% of their VAT inclusive turnover, but less than £1,000 per annum.  So the simplification has suddenly made life much more complex for the businesses in question!

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